Renewed Pressure on Ezone Peripheral Sovereign Debt

February 10, 2017

The dollar rose on speculation that details of growth-supporting U.S. tax reform will be unveiled within a couple of weeks. The U.S. currency rose 0.3% against the yen, euro and sterling, 0.2% relative to the Swiss franc and 0.1% vis-a-vis the Australian dollar and Chinese yuan.

The Mexican peso recovered 0.3% following a 50-basis point increase in the Bank of Mexico’s policy interest rate, which has now risen 325 basis point since December 2015. see review.

Ten-year sovereign debt yields in Europe increased five basis points in Italy, France, and Spain and by 2 bps in German and Britain. The Japanese JGB yield, by contrast, slid a basis point.

Comex gold fell back 0.8% to $1,227.20 per ounce. West Texas Intermediate crude oil jumped 1.2% to $53.61 per barrel.

Japan’s Nikkei jumped 2.5%. In other markets around the Pacific Rim, stocks rose 1.0% in Australia, 0.8% in Taiwan, 0.7% in Singapore, 0.5% in South Korea and 0.4% in China. Equities in Europe fell 0.8% in Italy, 0.7% in Spain and 0.1% in France but rose 0.3% in the U.K. and Germany. Concerns about political trends in Europe continue to weigh on the market especially bank stocks there.

China’s trade surplus widened to a 5-month high of $51.35 billion in January. Exports (+7.9%) and imports (+16.7%) each scored higher-than-forecast year-on-year gains.

The British merchandise trade deficit narrowed to GBP 10.89 billion in December on a big rebound in exports, but the 2016 deficit of GBP 134.9 billion was still 12.7% wider than the shortfall in 2015. The goods and services trade deficit printed at GBP 3.304 billion in December, GBP 8.579 billion in 4Q, and GBP 39.388 billion in 2016. A GBP 29.8 billion deficit had been posted in 2015.

British industrial production increased 1.1% in December but just 0.3% in 4Q and 1.2% in 2016. U.K. construction output was stronger than forecast in December, climbing 1.8% from November, but there was only a 0.6% on-year uptick.

French industrial production dropped 0.9% in December, most since April, but rose 1.1% last quarter.

Italian industrial production rose 1.4% in December, most since August. This doubled the on-year increase to 6.6%, but the rise in 2016 was just 1.6%.

Industrial production between end-2015 and end-2016 rose 4.7% in Malaysia, 3.6% in Romania, but just 1.3% in Finland.

Consumer prices in the year to January advanced 1.3% in Portugal, 0.9% in Denmark, 2.8% in Norway, and 2.2% in the Czech Republic.

A member of the ECB Governing Council, Mersch, opposes continuing forward guidance that indicates a possible further cut in interest rates. He thinks that could erode policy credibility.

Japan’s tertiary index, a gauge of service sector output, fell 0.4% in December and 0.1% in the fourth quarter. Changes from a year earlier were +0.6% both in the month and quarter. The index increased 0.7% in 2016 as a whole, down from 0.9% in 2015.

Japanese Prime Minister Abe in Washington will meet today with President Trump, who already is steamed because of the federal appeals court ruling upholding an injunction against implementing his executive order banning immigration from seven specified Islamic nations.

Japanese domestic corporate goods prices rose 0.6% in January, and the on-year change moved into the black (+0.5%) for the first time in over a year. Such had dropped 3.4% in the year to January 2016. Export prices increased 0.8% on year versus a 13.7% on-year drop recorded in January 2016, and import prices jumped 4.5% on year versus a 12-month decline of 2.6% in December and a 21.8% plunge in the year to June 2016.

The Reserve Bank of Australia published its quarterly Monetary Policy Statement. It said that negative growth in the third quarter of 2016 reflected transient factors and probably not the onset of a recession. However, officials did downgrade projected growth over the near term and said that unemployment would be 5-6% through mid-2019. It will also take that long for core inflation to move back into 2-3% target in a sustainable way.

U.S. data to be released today include import prices, the U. Michigan consumer sentiment index, and the federal monthly budget. Canadian labor market statistics arrive.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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