Elevated Geopolitical Tensions Lifts Price of Gold and Sovereign Debt Prices
April 7, 2017
U.S. missiles bombed the Syrian airport from which the chemical weapons strike on Syrian rebels had been launched. Russian President Putin condemned the U.S. act, saying such has damaged relations with America. The ruble fell slightly more than 1%. Some wonder if this convenient sequence might in part have been orchestrated to dispel suspicion that the Trump campaign helped Russian efforts to defeat Clinton in the U.S. election.
South Africa’s political crisis caused by the sacking of a popular finance minister has prompted Fitch to downgrade the country’s debt to junk status. The rand slipped to a new 2017 low.
Trump and Jinping, presidents of the U.S. and China, have a second day of talks scheduled. It was reported today that Chinese reserves rose in both February and March, their first back-to-back increases in 11 months. China has marginally more than $3 trillion of reserves.
A terrorist drove a truck into a Stockholm department store.
In economic news today,
U.S. non-farm payroll employment went up only 98K in March, about half as much as forecast, but the unemployment rate declined 0.2 percentage points to 4.5%, lowest since May 2007. Average hourly earnings rose 0.2% on month for a third straight time. The 12-month rate of wage growth dipped to 2.7% from 2.8%.
Canada’s jobless rate rose to 6.7% from 6.6%. 19.4K jobs were created in March, somewhat more than February’s net gain of 15.3K, but virtually all of the new jobs involved self-employed people.
A string of disappointing British economic releases corroborate other recent data pointing to slower growth. Industrial production fell 0.7% in February on top of a 0.3% dip in January, trimming the 12-month increase of such to 2.8% from 3.3%. Construction output slumped 1.7% in February and was merely 0.5% greater than a year earlier. GDP growth in the three months to March was lower than in the three months to February. The British goods and services trade deficit ballooned to GBP 3.66 billion in February from GBP 2.98 billion in January. There was a GBP 12.46 billion merchandise trade gap. The Halifax house price index posted a 15-month low on-year increase of 3.8% in March.
Japan’s index of leading economic indicators fell 0.5 to a 3-month low reading of 104.4 in February. Japanese inflation-adjusted labor cash earnings were unchanged in February. Nominal wage growth was just 0.4% on year, matching the average pace in December-January. Japanese reserves at the end of March totaled $1.23 trillion after climbing by $13.4 billion during the first quarter.
German industrial production increased 2.2% in both January and February. The average level in those months was 2.9% greater than the 4Q16 mean. February output was 2.5% higher than a year earlier.
Germany’s current account surplus rebounded to EUR 20.4 billion in February from EUR 14.6 billion in January and was similar to the February 2016 surplus of EUR 20.6 billion. Merchandise exports in March rose 0.8%, while imports fell 1.6% on month.
French industrial production fell 1.6% in February and was unchanged from a year earlier. In the year to February, industrial output climbed 2.1% in Denmark and 1.2% in Norway. Italian retail sales fell 1.0%.
Swiss unemployment remained at 3.3% last month. Romanian GDP expanded 4.9% from the final quarter of 2015 to 4Q16.
Australia’s Performance of Construction index (PMI) slipped to a 2-month low of 51.2 in March after swinging from four straight sub-50 monthly scores through January to 53.1 in February.
Mexican CPI inflation accelerated a half percentage point (ppt) to 5.35% in March, while Brazilian CPI inflation slowed 0.2 ppt to 4.6%.
The Canadian IVEY-PMI index jumped 6.1 points to a reading of 61.1 in March, best since January 2016.
The dollar is unchanged against the yen, 0.5% weaker versus the peso but up by 0.5% against sterling, 0.3% relative to the Aussie dollar and 0.1% vis-a-vis the euro, Swissie and kiwi.
Japan’s Nikkei recovered 0.4% after Thursday’s steep decline. But stocks closed lower in New Zealand, India, Indonesia, and Taiwan. In Europe, the British Ftse is higher, but the German Dax and Spanish Ibex are lower.
Gold and oil prices have strengthened 1.1% and 0.8% so far today.
Ten-year U.S. Treasury, German bund, and British gilt prices are up today, depressing their respective yields by 3, 4, and 3 basis points.
Late Thursday came word of the Central Reserve Bank of Peru’s decision to leave its key interest rate unchanged at 4.25%. Officials expect recently higher inflation to prove transitory.
Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.