European Economic Sentiment Stumbled in July

July 30, 2019

European share prices fell Tuesday, depressed by an unexpectedly large slide in economic sentiment in the euro area to a 40-month low of 102.7 in July. That’s down from 105.2 just two months earlier and 111.2 a year ago. Germany’s economic sentiment slumped 2.4 points between June and July. Two big factors are sapping the region’s economy: President Trump’s trade policy and the mounting likelihood of a hard Brexit.

In other European economic news out today,

  • Belgian real GDP rose just 0.2% on quarter in 2Q, slowest in seven quarters, and that reduced on-year growth to a 2-quarter low of 1.2%.
  • Swedish GDP contracted 0.1% last quarter, the first negative result in 3 quarters, and that depressed on-year growth in Sweden to 1.4% from 2.1% in the first quarter of 2019 and 2.4% in the final quarter of 2018.
  • Portuguese industrial production recorded an eighth straight year-on-year drop (5.8%) in July. Retail sales, however, were 4.5% greater than a year earlier, and consumer confidence in Portugal improved to a 6-month high.
  • Austrian real GDP went up just 0.3% in 2Q, its smallest quarterly advance since the winter of 2015, and was only 1.7% greater than¬† a year earlier.
  • Austrian producer prices were 0.1% lower than a year earlier in June, their first negative 12-month change since late 2016. Greek producer prices likewise posted their largest on-year decline (1.8%) in June since September 2016.
  • Norwegian retail sales fell 0.4% on month and rose just 0.4% on year in June.
  • German consumer price data were mixed in July. The national CPI index accelerated 0.1 percentage point to a 4-month high 12-month advance of 1.7%, but CPI inflation on a harmonized basis slowed 0.4 percentage points to 1.1% to a 32-month low.
  • German consumer confidence fell to a 28-month low in August.
  • French GDP increased 0.2% last quarter, which was still enough to lift on-year growth to a 3-quarter high of 1.3% from 1.2% in 1Q and 1.1% in the final quarter of 2018. The monthly measure of French consumer spending dipped 0.1% on month and 0.6% on year in June.
  • Irish unemployment of 4.6% this month was up from 4.5% in May and June.
  • Switzerland’s KOF index of leading economic indicators improved unexpectedly to a 4-month high of 97.1 in July after back-to-back readings of 93.8 in May and June.

Stock markets in Europe show losses so far today of 2.3% in Germany, 2.8% in Spain, 1.8% in France but just 0.4% in Great Britain.

In contrast, share prices elsewhere climbed 1.2% in Indonesia, 0.5% in South Korea, 0.4% in China and Japan, and 0.3% in New Zealand and Australia. The Dow Jones Industrials is down slightly.

Ten-year sovereign debt yields have slipped 2 basis points in the U.K. and a basis point each in Germany and Japan, but the 10-year Treasury is steady.

Prices for Comex gold and WTI oil are up 0.5% and 0.4%.

The dollar appreciated overnight by 0.5% against the battered pound, 0.4% relative to the Aussie dollar, 0.3% vis-a-vis the kiwi, and 0.1% versus the loonie. The dollar is steady against the euro, Swiss franc, and peso and shows a 0.1% downtick versus the yen.

Japanese industrial production dropped 3.6% on month and 4.1% on year in June. IP retained a trend designation of “fluctuating indecisively.” Japan’s jobless rate slid 0.1 percentage point to a 4-month low of 2.3% in June, and employment was 0.9% greater than a year earlier.

Business sentiment in South Korea’s manufacturing sector slipped 2 points to a 5-month low in August.

Filipino PPI inflation rose 0.1 percentage point to a 2-month high of 1.0% in June.

Building permits in Australia and New Zealand dropped on month in June by 1.2% and 3.9%, respectively.

On the central banking front there have been two significant pieces of news today:

  • The FOMC began a 2-day review of U.S. monetary policy that is expected to result in an interest rate cut tomorrow, but the size of the reduction seems more likely to be 25 basis points than 50 bps. The cut will be made in spite of today’s personal income and spending data release. Personal income rose by an ample 0.4% on month in June. Real personal expenditures went up 0.2% on month and 2.5% on year. Inflation measured by the core real personal consumption price deflator edged higher to a 4-month high of 1.6%, although the total PCE price index stayed at 1.4%.
  • The Bank of Japan’s Policy Board announced no change in monetary policy settings after a scheduled review. However, forward guidance express a more forceful easing bias with the addition of the following passage: ” in a situation where downside risks to economic activity and prices, mainly regarding developments in overseas economies, are significant, the Bank will not hesitate to take additional easing measures if there is a greater
    possibility that the momentum toward achieving the price stability target will be lost.” As has been the case at other recent policy reviews, two of the nine Board members (Kataoka and Harida) wanted an easier stance now. The Bank of Japan also released an updated quarterly Outlook for Economic Activity and Prices.

U.S. consumer confidence measured monthly by the Conference Board jumped over ten index points to a 5-month high of 135.7 in July from 124.3 in June. Pending home sales in June were also robust, increasing 2.8% on month but just 1.6% on year. This was the first on-year advance in 18 months.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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