Markets Calm Considering What’s Happened
June 9, 2017
Comey’s testimony, in which he basically called Trump a liar and laid out accusations that could be construed as an attempted obstruction of justice, may yet prove very damaging to the Trump Presidency and elicited a fairly rare full six-column headline on page 1 of the New York Times.
The Conservatives lost their parliamentary majority in Thursday’s U.K. election. Unlike former Prime Minister Cameron, Prime Minister May has not resigned after this virtual vote of no confidence in her leadership but instead has gone to Queen Elizabeth to request permission to try and form a coalition government. Sterling fell as low as $1.2635 overnight versus a closing level in N.Y. yesterday of $1.2945.
The European Central Bank Governing Council’s statement and Draghi’s press conference underscored a conundrum that many central bankers face, which is a clear tightening of labor market conditions has failed to lift inflation above levels that are considered too low to be consistent with price stability. There are policy meetings next week at the Bank of Japan, Swiss National Bank, Bank of England and, most importantly, the Federal Reserve. The first round of French parliamentary elections is in two days, followed by a second and decisive round on June 18th.
Market reactions overnight have been mild, all things considered, and the reason for this is that Thursday’s events were not altogether surprising. Opinion polls in the U.K. had flagged the risk of a hung parliament. Leaked news had braced investors to have a good notion about what Comey might say, and the juxtaposition of improving global growth but continuing insufficient price and wage pressure has been around for a while.
Sterling has rebounded to $1.2767, still representing a 1.4% overnight appreciation of the dollar. Sterling contagion on other currencies has been largely contained, moreover. The dollar shows overnight net increases of 0.4% versus the yen and Swissie, 0.3% against the euro, 0.2% vis-a-vis the Aussie dollar, and 0.1% against the loonie and kiwi. The yuan and peso are steady.
Share prices have risen 0.5% in the U.K., and closed up 0.8% in South Korea and 0.5% in Singapore and Japan. China’s market gained 0.3%. In Continental Europe, equities show a rise so far of 0.3% in Germany, 0.2% in France and Greece but dips of 0.5% in Spain and 0.2% in Italy.
West Texas Intermediate crude oil remains depressed at $45.77 per barrel but is 0.3% above Thursday’s close. Comex gold edged 0.2% lower to $1,276.40 per ounce.
The 10-year British gilt yield slipped 3 basis points to 1.00%. The 10-year German bund is unchanged, and the 10-year JGB is a basis point lower.
Japanese on-year M2 growth slipped back to 3.9% in May from 4.0% in April and 4.1% in the first quarter. But the monthly tertiary index leaped 1.2% on month in April, more than twice expectations and enough to produce a 12-month 0.6% rise versus 0.1% booked in the year to March.
German labor costs posted on-year growth of 2.5% last quarter, down from 2.9% in the final quarter of 2016 and 3.0% in the first quarter of 2016.
Chinese consumer price inflation was 1.5% in May, which matched expectations. While above April’s 1.2%, such was a full percentage point less than in January. Also, PPI inflation slowed to 5.5% in May from 6.4% in April and 7.6% in March.
The German unadjusted current account surplus of EUR 15.1 billion in April was only half as big as that recorded in March, but the seasonally adjusted trade surplus of EUR 19.7 billion was similar to EUR 19.9 billion in March and a first quarter average of EUR 20.0 billion per month.
French industrial production unexpectedly fell 0.5% in April and posted only a 0.8% increase from a year earlier. The Bank of France has bumped up projected GDP growth to 1.4% this year and 1.6% in the following two years but also looks for lower CPI inflation in 2018 and 2019 than it was anticipating in the previous bi-annual economic outlook published in December.
British industrial production also underperformed expectations in April, rebounding just 0.2% on month and posting the first on-year decline (that being a drop of 0.6%) since October. Factory output rose 0.2% on month and was unchanged on year. The goods and services U.K. trade deficit narrowed sharply to GBP 2.05 billion in April. The merchandise trade gap also fell but still exceeded GBP 10.0 billion. Finally, British construction output tumbled 1.6% in April and was 0.6% below its year-earlier level.
In the year to May, consumer prices rose 2.1% in Norway, 2.4% in the Czech Republic, and 1.2% in Greece.
The Central Reserve Bank of Peru kept its monetary policy rate unchanged at 4.0%, predicting in-target inflation over the coming two years. GDP is expanding more slowly than potential GDP, and external uncertainties continue.
Canadian labor statistics will be reported shortly.
Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British industrial output and trade figures, Chinese CPI and PPI, Comey, German current account, U.K. election