Dead Cat Bounce
May 14, 2019
The escalation of trade war hostilities between the U.S. and China rattled global financial markets significantly yesterday, but today’s mood has been more encouraging. Share prices in Europe are up so far by 1.2% in France, 1.0% in the U.K. and Italy, and 0.9% in Germany. In Asia, equities fell 1.8% in Hong Kong, which was closed for holiday on Monday, and by 1.1% in Indonesia, 0.7% in China and 0.6% in Japan.
Today’s better market mood may reflect no more than a dead cat bounce after Monday’s plunge, but investors were glad to hear that talks are continuing between trade representatives of China and the United States. President Trump predicted that he and Chinese President Xi will hold a meeting on the sidelines of the G20 summit in Japan in late June and that those talks would likely be fruitful.
The dollar is again little changed, with upticks overnight of 0.3% against the yen and 0.1% relative to the Swiss franc, no movement versus sterling or the yuan, and dips of 0.2% relative to the kiwi and 0.1% versus the euro, loonie, and Australian dollars.
WTI oil had fallen during U.S. hours on Monday but again turned up overnight. Gold is 0.4% softer.
Ten-year U.S. Treasury and British gilt yields firmed a basis point, but their Japanese counterpart fell back to -0.06%.
Data released overnight were unremarkable.
Japan’s seasonally adjusted current account surplus fell to JPY 1.27 trillion in March from JPY 1.90 trillion in February, as the merchandise trade balance swung back into the red. Exports dropped 2.4% on month and 5.2% on year. The merchandise trade surplus in fiscal 2018 ending March 2019 was only JPY 707 billion after a JPY 4.54 trillion surplus in fiscal 2017.
The Japanese economy watchers current index rebounded to a 2-month high but stayed well south of the 50 level at 45.3. The economy watchers outlook index dropped by a further 0.2 points to 48.4. Bank lending last quarter was just 2.3% greater than a year earlier.
Industrial production in the euro area recorded a monthly drop of 0.3% in March, the fifth decline in the past six months, and was also 0.6% below its year-earlier level. On-year output contractions were even greater in the largest members of the single currency bloc: 2.5% in Germany, 3.4% in Spain, 1.4% in Italy and 1.0% in France.
The German ZEW expectations index, a barometer of financial market sentiment toward that economy, swung from +3.1 in April to -2.1 in May, and its Euroland counterpart weakened 6.1 points to minus 1.6. These deteriorations happened in spite of better readings regarding perceptions of current conditions.
On-year real GDP growth in the Netherlands dropped 0.5 percentage points to 1.7% in the first quarter, the lowest advance since the final quarter of 2015 despite an 11-month high in on-year retail sales expansion in March.
Two Fed officials — Rosengren and Clarida — indicated that officials are assessing the impact of the trade war and believe that a low neutral interest rate is likely to persist.
South Africa’s jobless rate of 27.6% last quarter was the most since the third quarter of 2017.
Germany’s index of leading economic indicators fell 0.4% in March following a 0.6% drop the month before.
NAB’s index of Australian business confidence recovered just a point to a reading of zero in April from March’s 42-month low, while the index of business conditions dropped 4 points to a 4-month low of +3.
The Swiss combined producer price and import price index was unchanged in April from the level in March. The 12-month comparison, which had shown a smaller 0.2% decline in March after one of 0.7% in February, ballooned back to a drop of 0.6% in April.
German WPI inflation accelerated unexpectedly to a 4-month high of 2.1% in April. CPI inflation of 2.0% last month confirmed the preliminary estimate in Germany.
Spanish CPI inflation rose 0.2 percentage points in April to 1.5%, a 5-month high. Finnish CPI inflation rose 0.4 percentage points to a 6-month high of 1.5%, and Swedish CPI inflation of 2.1% also marked a 6-month high last month.
Turkish industrial production in March was below its year-earlier level for a seventh straight month, but the 2.2% 12-month rate of decline was the smallest of that streak.
The latest monthly batch of British labor statistics was mixed. Average weekly wage earnings, which had touched a 10+ year high of 3.5% in February, settled back to 3.2% in March, and jobless insurance claims went up another 24.7k in April. But the ILO-basis unemployment rate fell to 3.8%, lowest since late-1974.
Indian wholesale price inflation slipped 0.1 percentage point to 3.07% due to lessening upward pressure of fuel and manufacturing goods prices.
Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Euroland industrial production, German CPI and WPI, Japanese current account, U.S. small business sentiment