2.3% Rise in Crude Oil Price Sets the Tone

May 5, 2016

West Texas Intermediate crude oil rose a whole dollar to $44.78 per barrel on news of the lowest U.S. production last week in nineteen months.  There was an implicit signal from Saudi Arabia that its official believe oil has bottomed and will rise further.  Comex gold is 0.3% higher at $1,278.50 per ounce.

Firmer commodity prices melted risk aversion in other markets, enabling European share prices to rise for the first time in a week.  Stocks have climbed 2.8% in Greece, 1.0% in Spain, 0.7% in Italy, 0.3% in Germany and 0.1% in France.  Swiss markets are closed for Ascension Day, and Japanese and South Korean markets were shut for Children’s Day.  In other markets around the Pacific Rim, equities advanced by 0.9% in New Zealand, 0.6% in India and 0.2% in China, Australia and Indonesia but slipped 0.8% in Hong Kong and 0.2% in Taiwan and Singapore.

The 10-year British gilt yield dipped two basis points, while the 10-year German bund edged up a basis point.  The Turkish 10-year bond yield advanced to a one-month high as it appears that the authoritarian President Erdogan of the country has won his political battle with the more moderate prime minister, who likely will resign soon.

The dollar fell against commodity-sensitive currencies by 0.4% versus the loonie, 0.3% relative to the Aussie dollar and 0.1% vis-a-vis the kiwi.  Otherwise, the dollar rose 0.7% against the Swiss franc, 0.5% relative to the euro, 0.2% versus the yuan and 0.3% against the yen and sterling.

The National Bank of Romania retained a 1.75% policy interest rate despite hints after the previous central bank meeting at end-March that a possible rate hike would be considered at this meeting.  The last rate change, a cut of 25 basis points in May 2015, culminated 100 basis points of easing last year and 350 bps of cuts since mid-2013.

Further released purchasing manager surveys for the month of April were mostly weaker than the March reports, revealing

  • Two-month lows in China’s services and composite PMI indices to 51.8 and 50.8 according to Caixin.  Business sentiment failed to rise from a 3-month low in March.
  • A 26-month low in Ireland’s service-sector PMI to 59.8 compared to a 62.8 reading in March.
  • A 38-month low in the British services PMI to 52.3.  Analysts were predicting a 53.5 score versus 53.7 in March.  The composite PMI dropped 1.7 points to 51.9.  Blame Grexit fears.
  • An 8-month low in Hong Kong’s private PMI to 45.3.  Employment, orders and output declined.  Input price inflation slowed.
  • A 2.6-point slide in Singapore’s private PMI, which fell under the 50 no change mark for the first time in 11 months with the weakest reading on export orders since end-2012.
  • A 0.9 point rebound in South Africa’s private PMI to 47.9 versus March’s 20-month low.  Activity is still contracting, nonetheless.

Three Australian economic indicators were reported:

  1. The trade deficit narrowed 28.9% on month in March as exports rose 4.3% to an import gain of 0.7%.  The first-quarter deficit totaled AUD 8.477 billion.
  2. Retail sales increased 0.4% in March and were 3.6% greater than a year earlier.  Sales volume growth in 1Q of 0.5% was a bit less than forecast.
  3. New home sales dropped 0.4% in March, which was less than February’s monthly plunge of 5.3%.

The 12-month decline in Cypriot consumer prices remained at 2.5%.  Retail sales in Hong Kong posted a 9.8% March-on-March drop.

Neel Kashkari, president of the Minneapolis Fed asserted that he doesn’t foresee a U.S. recession but also said the Fed would not be raising interest rates in an aggressive fashion.  Several other Fed officials — Bullard, Kaplan, Lockhart, and Williams — speak publicly today.

The Czech National Bank and Bank of Mexico are holding policy meetings today.

U.S. weekly jobless claims and Canadian building permits will be reported as well.

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

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