Less Fear about Italy, More Fear Over Trade
May 30, 2018
Highly successful Italian 10-year and 5-year sovereign debt auctions following growing incohesion among anti-euro political elements in that country alleviated one source of market strains. 10-year government bond yields fell by 24 basis points in Italy, 21 bps in Greece, 9 bps in Portugal and 4 bps in Spain. Yields, by contrast, rose 11 bps in Germany, 9 bps in U.S. Treasury futures and The Netherlands, and 6 bps each in the U.K. and France.
In yet another reversal of tack, President Trump is again threatening China with more tariffs, increasing the risk of a tit-for-tat escalation of trade tensions.
The dollar fell overnight by 0.9% against the euro, 0.8% versus the peso, 0.6% vis-a-vis the Australian dollar, 0.4% versus the loonie and sterling, and 0.2% against the Swiss franc. The greenback is unchanged against the yuan and has recovered 0.2% versus the yen.
Taking a cue from Tuesday’s U.S. stockmarket meltdown, share prices slumped 340 points or 1.5% in Japan and dropped 2.5% in China, 2.1% in Singapore, 2.0% in South Korea, 1.6% in Hong Kong and 1.3% in Taiwan. In Europe, however, equities are up by 2.1% in Greece, 1.9% in Italy, 0.9% in Spain, 0.7% in Germany and 0.3% in the U.K..
WTI crude oil recovered 0.5% to $67.05 per barrel. Comex gold at $1,301.60 per ounce is down 0.2% so far today.
At an unscheduled monetary policy review, the 7-day Indonesian reverse repo, which had been raised by 25 basis points 13 days ago, was increased by another 25 bps to 4.75%. Bank Indonesia has a new governor, Perry Warjiyo, who hopes to stop the depreciation of the rupiah, which like many emerging market currencies has been pressured by Fed tightening and geopolitical tensions caused by the U.S.-Sino trade dispute and uncertainty regarding North Korea’s nuclear program.
U.S. real GDP growth last quarter was revised down o.1 percentage point to an on-quarter annualized rate of 2.2%. Personal consumption, residential construction, exports, and the boost from inventories also were revised lower, but non-residential investment growth got revised upward to 9.2%. GDP was 2.8% greater than in the first quarter of 2017. On-year core inflation measured by the personal consumption deflator was revised 0.1 percentage point lower to 1.6%. In a separate U.S. release, ADP estimates that private-sector jobs rose 178K in May, a tad less than analysts were assuming.
Japanese consumer confidence ticked up 0.2 points to a 2-month high of 43.8 but that’s still below the three-month run at 44.6 last November-January. Retail sales in Japan rebounded 1.4% on month in April but were just 1.6% above their year-earlier level.
Economic sentiment in the euro area slid 0.2 points to a 9-month low of 112.5 in May. Two-month lows were also recorded in retail and consumer confidence. Industrial sentiment fell to a 9-month low, but sentiment in construction was its strongest in at least a year.
Several German economic indicators were reported today:
- Import prices rose 0.6% in April against both March and April of 2017. On-year inflation was the most in three months, thanks to a 4.2% leap in energy costs. Non-energy import prices edged 0.1% higher but were 0.9% below a year earlier.
- Retail sales volume, which had fallen on month in the three prior months, rebounded by 2.3% in April and was 1.2% higher than a year earlier.
- German unemployment slipped 0.1 percentage point to 5.2% in May. The number of unemployed workers fell another 12K, while job vacancies increased 5K. Employment in April was 1.3% higher than a year earlier.
- Preliminary consumer price data from six German states suggest that inflation accelerated to 2.2% in May, most since February 2017 and 0.6 percentage points greater than in April. The increase exceeded expectations.
French GDP growth last quarter was revised downward to 0.2% versus 1Q. Both net foreign demand and inventories provided zero impetus to growth in the quarter. French consumer spending, measured monthly, fell 1.5% in April and was just 0.2% higher than a year earlier.
Swedish GDP rose 0.7% in 1Q and 3.3% from a year earlier.
Polish GDP registered a rise of 5.2% between 1Q17 and 1Q18.
Brazilian GDP grew 0.4% on quarter and 1.2% on year in 1Q.
On-year GDP growth in Portugal last quarter was 2.1%. Over the twelve months through April, retail sales firmed only 0.7%, but industrial output went up 3.8% in Portugal.
The Swiss index of leading economic indicators sank 3.3% to its lowest reading in 21 months during May.
British shop prices were 1.1% lower than a year earlier in May, their greatest on-year decline since January 2017.
Norwegian retail sales rose 0.6% on month and 1.8% on year in April.
Producer prices in the 12 months through April rose 1.9% in Austria, 2.0% in Greece, and 1.0% in Iceland.
Spanish consumer prices were 2.0% higher in May than a year earlier, and Spanish business sentiment weakened in May.
Canada’s current account deficit widened C$ 3 billion between the final quarter of last year and the first quarter of this one, reaching C$ 19.5 billion. PPI inflation in Canada remained at 2.4% in April.
Building permits in New Zealand and Australia respectively fell 3.7% and 5.0% on month in April.
Year-on-year South African M3 money growth of 6.39% was barely changed in April while private sector credit expansion slowed a bit to 5.67%.
Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: euro area economic sentiment, German CPI, Italy politics, Japanese consumer confidence and retail sales, revised U.S. GDP, U.S.-Sino trade tensions
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