Trump Takes Giant Step Closer to Being America’s 45th President

May 4, 2016

Ted Cruz dropped out of the Republican race after losing to Donald Trump by a landslide margin in the Indiana primary.  The Democratic race is not over, by contrast, as Sanders unexpectedly beat Clinton in Indiana.  While Clinton leads by a big margin in the delegate count, she will be drawing criticism from both the left and right over coming weeks.  As in 2008 when challenged by Obama, Clinton has proven surprisingly vulnerable to challenges when starting as a prohibitive favorite.  Trump, on the other hand, has consistently performed better than predicted and demolished Fiorina’s early bid for the Republican nomination.  Although most pollsters and pundits foresee Clinton as the clear favorite in a race against Trump, the intangibles like those contrasts above point to a Trump victory in November especially if the U.S. economy fails to perk up or if there are foreign policy setbacks between now and then.

Equity markets remained on the back foot Wednesday.  Japan was closed for Greenery Day, but stocks fell 1.4% in Singapore, 1.5% in Australia, 1.3% in Taiwan, and 0.5% in India, Hong Kong and South Korea.  The Paris Cac and German Dax are down 0.8%.  The Spanish IBEX has lost 0.9%, and the British Ftse has swooned 1.3%, as Brexit fears continue to swirl.

The dollar is comparatively steady ahead of several U.S. data releases.  It is unchanged against the euro, yuan and yen but up 0.3% relative to the loonie, 0.2% versus sterling and the kiwi, and 0.1% higher vis-a-vis the Swiss franc and Aussie dollar.

The 10-year German bund yield rose two basis points.  British gilts are steady.

Gold fell back 0.7% to $1,277.82 per ounce. WTI oil is 0.5% firmer at $43.87 per barrel.

U.S. mortgage applications fell 3.4% last week after a 4.1% drop in the prior week. 

New Zealand labor statistics for the first quarter of 2016 showed a 0.3 percentage point rise in the jobless rate to 5.7%, on-year employment growth of 2.0%, a higher labor participation rate of 69.0%, and accelerated private labor costs, which posted a 1.8% increase from the first quarter of 2015.

Disappointing eurozone retail sales were reported.  Volume fell 0.5% in March from February, reflecting drops of 5.2% in Portugal, 1.1% in Germany, 0.7% in France, and 0.5% in Belgium.  Such followed 0.3% upticks in both January and February, and resulted in a reduced 12-month 2.1% rate of climb.

Euroland’s April composite purchasing managers index edged down 0.1 to a 2-month low of 53.0, consistent with a 1.5% annualized pace of GDP growth at the start of the second quarter.  The services PMI was unchanged last month at 53.1.

The German composite PMI reading of 53.6 was at an 11-month low, and its services PMI of 54.5 was at a 6-month low, pointing to softer economic growth than the 1Q pace.

Although higher than its March scores, France’s composite PMI of 50.2 and services PMI of 50.6 convey a picture of minimal growth.

Italy recorded two-month highs in its composite PMI (53.1) and services PMI (52.1).  Business sentiment improved.

Spain posted a 3-month high of 55.2 in its composite PMI despite a 2-month low in the services PMI of 55.1 last month.

India’s composite and service-sector purchasing manager indices in April of 52.8 and 53.7 were both lower than March’s multi-year highs, indicating March may have been a spike rather than the start of a better trend.

Australia’s Performance of Services index (49.7) rose 0.2 points but remained below the 50 no change mark for a second straight month.

Sweden’s services PMI dropped 2.3 points to a 2-month low of 52.6 in April.

The Greek manufacturing PMI increased 0.7 points to 49.7 but was under 50 for a third consecutive time.

The U.K. construction PMI slumped back 2.2 points to a 34-month low of 52.0.

A global manufacturing PMI compiled by J.P. Morgan fell 0.5 points to 50.1 in April.

Bank of Canada Governor Poloz endorsed the view that negative interest rates have proven effective, but earliest wire reports of his speech indicated just the opposite initially before getting corrected later.

Atlanta Fed President Lockhart indicated the fed funds rate cut be raised at the June meeting but also said the U.K. EU referendum might influence the decision.  Lockhart sees a possible two rate hikes this year.

The French trade deficit narrowed 14.6% to EUR 4.37 billion in March.

British shop prices dropped 1.7% on year last month, matching the reported decline in March.

Revised U.S. productivity and unit labor cost data showed 1Q16 over 4Q15 changes of -1.0% and +4.1%, respectively.  Productivity rose 0.7% on year compared to a 0.5% rise between the first quarters of 2014 and 2015, while unit labor costs were 2.2% higher than a year earlier, accelerating from a 4Q15-over-4Q14 increase of 1.1%.

The U.S. goods and services trade deficit, which had widened to $47.1 billion in February, narrowed back to $40.44 billion in March.

ADP’s estimate of U.S. private sector jobs growth last month was today’s shocker thus far, coming in at only 156K versus 200K in March and expectations of just under 200K again.

Canada’s merchandise trade deficit with the world widened from $2.5 billion in February to a record $3.4 billion in March.

Still to come: U.S. factory orders, services PMI and more public comments from Fed officials.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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