Mexican Rate Hike, Some Preliminary PMI Results, and a Trump Revelation

June 23, 2017

Mexico’s key central bank interest rate was hiked by an additional 25 basis points to 7.0%, bringing its cumulative rise to four percentage points from 3% prevailing from October 2014 through the early December 2015. However, Bank of Mexico officials suggested in a statement that no more tightening may be necessary. See review. The peso rose another 0.3% against the dollar overnight.

Economic growth in the euro area and Japan may have decelerated in June according to preliminary purchasing managers surveys.

  • Euroland’s composite PMI dropped 1.1 points to 55.7, a 5-month low. While manufacturing edged up another 0.3 points to a 74-month high of 57.3, the Ezone services PMI dropped 1.6 points to a 5-month low. The second-quarter composite PMI average reading of 54.6 nevertheless constitutes a 25-quarter high and suggests robust GDP growth of around 0.7% this quarter. Inflationary pressure eased in June.
  • Germany’s composite PMI of 56.1 in June was the lowest since February. The manufacturing and services PMI readings were at 2- and 5-month lows of 59.3 and 53.7.
  • France had a composite PMI of 55.3, 1.6 points lower than in May and indicating the slowest growth since January. While manufacturing activity quickened, services slowed.
  • Japan’s preliminary manufacturing PMI reading of 52.0 in June was 1.1 points lower than May’s score and represents the slowest rate of positive factory activity since last November when the PMI stood at 51.3.

The dollar experienced a better-bid week than the previous ones in June, but overnight the currency fell 0.4% against the Aussie dollar and sterling, 0.3% versus the kiwi and peso, and 0.1% relative to the euro while holding unchanged vis-a-vis the yen, loonie, Swissie and yuan.

After floating the possibility that he may have taped conversations he had with former FBI Director Comey, President Trump admitted the suggestion had been untrue. 

St. Louis Federal Reserve District President Bullard expressed the worry that the Fed may be pursuing policy normalization at a pace that is too aggressive.

WTI oil, though up 0.2%, remains below $43 per barrel at $42.81. Gold (up 0.7%) and key industrial metals like copper firmed overnight.

The ten-year British gilt yield rose 3 basis points as EU talks moved into a second day. Ten-year German bund and Japanese JGB yields are steady.

Stocks are down a further 0.9% in Spain, 0.7% in Italy and Germany, 0.6% in Switzerland and France, and 0.5% in the U.K.. Equities closed narrowly mixed in the Pacific Rim, including a 0.1% uptick in Japan’s Nikkei.

French first-quarter growth was revised up by a tenth of a percentage point to 0.5%. However, personal consumption stagnated, and net foreign demand exerted a drag of 0.6 percentage points. A boost of 0.7 percentage points from inventories was the main impulse.

Fresh Swiss growth and inflation forecasts for 2017 were published by KOF. GDP is projected to rise 1.3%, and consumer prices are seen edging only 0.3% higher both this year and next.

Singapore industrial production in May was considerably weaker than expected, recording a 3.5% monthly slump and a smaller on-year advance of 5%. CPI inflation in Singapore accelerated a full percentage point to 1.4% in May.

U.S. new home sales, Canadian consumer prices and Mexican retail sales data will be reported later today.

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

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