Some weak European and Japanese Data
August 29, 2018
French GDP growth slowed to a 0.2% per quarter rate in the first half of 2018 from 0.7% per quarter in the second half of 2017. In the second quarter alone, personal consumption contracted for the first time since the summer of 2016. Imports advanced five times faster than exports, and net foreign demand exerted a 0.3 percentage point drag on the quarterly growth rate. Year-on-year growth slowed to 1.7% in 2Q from 2.1% in 1Q and 2.8% in the final quarter of 2017.
A separate data release in France indicates that consumer spending began the third quarter on an even weaker note, edging up just 0.1% on month after advances of 0.3% in June and 1.0% in May.
German consumer confidence slipped slightly in September to its weakest reading so far this year.
The UBS ZEW expectations index, which measures investor confidence in the Swiss economy also fell to a 2018 low point, printing 10.3 points lower in August at -14.3.
Although up by a mere 0.1%, British shop prices exceeded their year-earlier level for the first time since May 2013.
Austria’s manufacturing purchasing managers index dropped 0.4 points to 56.4 in August, lowest since December 2016.
Japanese consumer confidence slipped 0.2 points to 43.3 in August, opening up the biggest gap from the 50 neutral level in a year.
In market action, the dollar fell 0.6% against sterling but was otherwise mostly stronger, with advances of 2.9% against the Turkish lira, 1.5% relative to the South African rand, 0.6% vis-a-vis the Australian dollar, 0.4% versus the yuan and peso, 0.3% against the euro, 0.2% versus the kiwi, and 0.1% against the yen and loonie.
After Tuesday’s 17-basis point advance, the 10-year British gilt yield ticked up an additional basis point today. Other 10-year sovereign debt yields have been comparatively steady.
Share prices climbed 0.8% in Australia, 0.5% in India, 1.0% in Taiwan, 0.2% in Japan but fell 0.3% in China. The divergent trends in the Chinese and U.S. stock markets over recent months has been startling and no doubt reinforcing the Trump Administration’s belief that the U.S. would win a trade war with China.
In Europe, equities have slid 0.7% in Spain and 0.4% in the U.K. but risen 0.2% in France and Italy and by 0.1% in Germany.
WTI oil advanced 0.7%, whereas metals like gold (down 0.5%) and c0pper (off 1.3%) declined in price.
On the central banking front,
- Turkish monetary authorities, who had taken measures two weeks ago to boost liquidity, doubled the limit on banks’ overnight borrowing. The lira nevertheless remained weak.
- Iceland’s 7-day term deposit rate was kept unchanged at 4.5%. In a released statement after this expected decision, Iceland’s Monetary Policy Committee projected a somewhat higher 3.6% rate of economic growth this year, attributed a recent rise of inflation to oil and the diminishing impact of previous krona appreciation, and noted that long-term expected inflation is now somewhat above target. There was a hint of a rate hike to come: ” If inflation expectations continue to rise and remain persistently at a level above the target, it will call for a tighter monetary stance. ” The 4.25% term deposit rate level was reached after four cuts totaling 125 basis points administered between August 2016 and October 2017.
- A Bank of Japan Board member, Suzuki, expressed concern over the effect of monetary policy on global bond markets and predicted that factors depressing Japanese inflation will diminish.
- Israel’s central bank interest rate was left at 0.10%, its level since a 15-basis point reduction in February 2015. Since rising above zero percent a year ago, inflation has moved up to 1.4% but is still below target.
U.S. real GDP growth in the second quarter was revised up a tenth of a percentage point to 4.2% at a seasonally adjusted annualized quarter-on-quarter rate. That’s above 4.0% for the first time in almost 4 years. On-year growth was 2.9%, up from 2.6% in the first quarter, 2.1% in the second quarter of 2017 and 1.3% in the second quarter of 2016. On-year changes in the PCE and core PCE price deflators were at 2.2% and 1.9%. Nominal GDP advanced by a robust 7.6% at a seasonally adjusted annualized quarter-on-quarter pace. From all these respects, there is nothing here to deter the Fed from raising interest rates next month and probably again in December. Nor is the dollar appreciating too quickly to put a brake on such moves. The one reservation is that the 10-year minus 2-year Treasury yield curve has narrowed to just 21 basis point. Inversions have frequently preceded recessions even at times when experts felt that such a warning sign no longer applied.
Canada’s second quarter current account deficit shrunk 9.2% to C$ 15.876 billion, its narrowest width in a year. A C$ 3.3 billion drop in the merchandise trade gap was the driving force. Canadian trade officials are hurriedly trying to negotiate a trade deal before Friday’s deadline that needs to be met in order for a 3-participant deal with the U.S. and Mexico to be preserved.
Still ahead: U.S. pending home sales.
Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Canadian current account, French GDP, German consumer confidence, Japanese consumer sentiment, U.S. GDP