Sentiment Up Ahead of FOMC on Japanese Fiscal Indication and Apple’s 2Q Earnings

July 27, 2016

The FOMC will release a policy statement at 14:00 EDT (18:00 GMT).  No rate hike is expected.

Japanese Prime Minister Abe quantified the coming fiscal stimulus at a greater-than-expected JPY 28 trillion, or roughly $265 billion.  However, it seems that only about half the total will involve “real money,” that is actual government deficit spending.  The time period of the stimulus is not clear.  It will be mostly financed by construction bonds rather than deficit bonds, and there is general scepticism in the market about the impact of large Japanese fiscal packages.  Many such endeavors over the past 25 years failed to boost growth much.  Nonetheless, the dollar recovered 1.0% against the yen overnight, Japan’s Nikkei advanced 1.2%, and the 10-year Japanese JGB fell 3 basis points to -0.30%.

Apple share prices led an advance in U.S. technology stocks after a better-than-expected second-quarter earnings report announced after trading hours on Tuesday.  The DJIA is up 0.3%.  In the Pacific Rim, stocks rose 0.4% in Hong Kong and Taiwan, 0.3% in Singapore, and 1.0% in Indonesia.  In Europe, they are up so far by 1.7% in Italy and Spain, 1.5% in France, 0.8% in Germany, and 0.7% in Great Britain. Egyptian share prices got a big boost to lead emerging markets.  There was news that a loan from the IMF to Egypt is near agreement

British second quarter GDP expanded by a greater than forecast 0.6% from 1Q and 2.2% from a year earlier.  The data predate the surprising Brexit vote, however, and post-Brexit statistics have reflected a huge hit.  For example, the CBI distributive trades survey released today showed an 18-point slide to a reading of -14 in July, worst in more than a year.

The dollar is unchanged against the euro, loonie and yuan.  There’s been a dollar loss of 0.5% relative to the Aussie dollar after lower-than-assumed Australian CPI inflation was reported but upticks of 0.2% versus the Swiss franc and kiwi and of 0.1% vis-a-vis sterling.

Ten-year sovereign debt yields have dropped six basis points in the U.K., three basis points each in Japan and Germany and a basis point in the United States.

West Texas Intermediate crude oil edged 0.1% lower to $42.92 per barrel, near a 3-month trough.  Comex gold advanced 0.4% to $1,326.60 per ounce.

Australian CPI inflation slowed to 1.0% in 2Q from 1.3% in 1Q, 1.7% in 4Q15 and 1.5% in the second quarter of last year.  Core inflation remained at roughly 1.5% last quarter.

The centerpiece on the second day of the U.S. Democratic Party convention in Philadelphia was a speech by former President Bill Clinton that drew highly favorable critic reviews.

Small business sentiment in Japan improved 1.3 points to a 3-month high of 47.8 in July.

South Korean consumer confidence climbed to a reading of 101 in July from 99 in the previous two months and 100 in March and April.

French consumer confidence lost more ground in July, slipping to a reading of 96 from 97 in June and 98 in May.

And Swedish economic sentiment dropped 0.8 points to 102.2, reflecting lower manufacturing confidence and a drop in consumer sentiment.  Finnish consumer confidence in July fell 1.8 points below June’s 13-month high of 14.9, and Finnish manufacturing sentiment also weakened.

Likewise, German consumer confidence slid 0.1 point back to 10.0, still the second best score of 2016.

But Italian consumer sentiment rebounded to 111.3 in July after dropping 2.3 points to a score of 110.2 in June. Italian business sentiment also advanced solidly, climbing to 103.3 from 101.2.

Spanish retail sales jumped 1.7% in June and accelerated sharply to a 5.6% on-year advance.

UBS reported a rebound of the Swiss consumption indicator to a 3-month high of 1.34 in June from 1.24 in May.

Eurozone M3 money growth accelerated to 5.0% in June from 4.9% in May, but the on-year growth in 2Q of 4.9% was a tad less than 5.0% in the first quarter.  M1 growth slowed, but broader components of money picked up pace.

German import prices increased 0.5% between May and June, trimming the 12-month rate of decline to a 5-month low of 4.6%.  Energy jumped 4.2% on month, while other import prices edged up just 0.2%.

Chinese corporate earnings growth accelerated to 5.1% on year last month, while the Westpac measure of Chinese consumer sentiment fell 1.6% in July.

U.S. durable goods orders plunged more sharply in June than had been predicted, losing 4.0% on top of a 2.8% drop in May.  U.S. mortgage applications dived 11.2% last week.  Pending home sales rose 1.0% on year in June.

Investors eagerly await clues in the FOMC statement regarding the timing of the next interest rate hike, but do not expect a move to be announced just yet.  President Obama speaks at the DNC tonight.

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

 

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