Risk-Off Mood in Financial Marketplace

June 14, 2018

Investors are reacting Thursday to

  • An increasing likelihood of four Fed rate hikes this year and three more in 2019 following yesterday’s federal funds rate increase and hawkish press conference.
  • News today from the European Central Bank that monthly asset buying will be sliced in half to EUR 15 billion from October and eliminated altogether from the start of 2019. Principal of maturing securities will continue to be reinvested by the central bank. Key interest rates remained as is and are unlikely to get raised at least until the summer of 2019.
  • Weaker-than-expected Chinese data on retail sales, industrial production and business investment, combined with President Trump’s reaffirmed intention to play trade policy hardball against Beijing.
  • Brexit chaos and the ascent of Italian political populism.
  • The ambiguity of the result of the Trump-Kim Summit regarding what it means for North Korea’s nuclear program.

Share prices fell 1.8% in South Korea, 1.4% in Taiwan, 1.0% in Japan and Hong Kong, and 1.1% in Singapore. European stock markets are thus far down 0.6% in Switzerland, 0.5% in Italy, 0.4% in Spain, 0.3% in the U.K. and Germany, and 0.1% in France.

The dollar has declined today by 0.5% relative to sterling, 0.4% against the yen and peso, 0.3% versus the kiwi, Swiss franc, euro and loonie, and 0.2% vis-a-vis the yuan.

Ten-year sovereign debt yields rose today by 10 basis points in Italy, 7 bps in Greece, 3 bps in Portugal, 2 bps in Spain, The Netherlands, France and Germany. The Japanese JGB is steady, and the 10-year U.S. Treasury yield has settled back two basis points.

In a further reflection of risk aversion, gold jumped by a further 0.6%. WTI oil has risen 0.5% in spite of a comment from the Saudi oil minister endorsing the need for an OPEC agreement to raise production.

Chinese industrial production and retail sales during May were 6.8% and 8.5% greater than a year earlier, down from April on-year advances of 7.0% and 9.4%. Fixed asset investment in January-May was 6.1% greater than a year earlier, down from a 7.0% January-April increase and a 7.2% rise in 2017.

The Chinese jobless rate edged marginally lower to 4.8% in May, while on-year growth in foreign direct investment was just 1.3%.

Australian labor market data disappointed despite a drop of the jobless rate to 5.4%. There was a smaller-than-projected 12K increase in jobs and an unchanged labor participation rate of 65.6%.

German CPI inflation in May was confirmed to have accelerated from 1.6% in March and April to 2.2%, most in 15 months. Energy and food posted on-year advances of 5.1% and 3.4%, while core inflation increased 0.2 percentage points to 1.6%, including a 0.4-percentage point rise in service prices to 1.9%.

France’s consumer price release likewise matched the preliminary indication, having accelerated from 1.6% in April to 2.0% in May.

In other European price news, Swedish CPI inflation rose to 2.1% in May from 1.9% in April. Polish CPI inflation ticked up 0.1 percentage point to 1.7% last month. Finnish CPI inflation stayed level at 1.0%, and Greek import price inflation jumped by 1.7 percentage points to 7.0% in April.

Indian wholesale price inflation also accelerated in May, printing at 4.43%, 1.25 percentage points higher than in April. The inflation rates for food, fuel and manufactured goods in India all picked up.

Revised Japanese industrial production in April was 0.5% higher than in March and 2.6% greater than a year earlier, similar to the first quarter’s on-year increase of 2.4% but down from a 4.4% rise in 2017. Capacity was unchanged in April from a year earlier, but capacity usage rose by 1.9%.

South African wholesale turnover declined in April by 3.2% on month and 2.6% from a year before.

One piece of better-than-forecast economic news came from British retail sales. The volume of total sales climbed 1.3% on month in May on top of a 1.8% increase in April, and it was 3.9% above the year-earlier level. Excluding auto fuel, sales volume also rose 1.3% on month and gained 4.4% on year.

Dutch export volume recorded the fastest on-year advance (6.6%) in April since November.

The Chilean central bank by unanimous vote maintained a 2.5% monetary policy rate. Inflation is still below the medium-term target there.

Industrial production in Hong Kong advanced 1.3% last quarter and exceeded the first-quarter of 2017 level by 1.1%.

U.S. retail sales, import prices and weekly jobless insurance claims arrive today.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express  permission.

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