Sterling Weakens on Data

August 9, 2019

The dollar edged down 0.2% against the yen and kiwi, 0.3% versus the peso, and 0.1% relative to the euro, Swiss franc and Canadian dollar on this 45th anniversary of the resignation of former President Nixon. But today’s weakest major currency has been sterling, down 0.6% against the dollar in response to¬† news that British real GDP had contracted 0.2% in the spring quarter, trimming the on-year growth rate to a 5-quarter low of 1.2%. Business investment was depressed by Brexit concerns.

British industrial production, construction output, and trade data were also reported.

  • Industrial production dipped 0.1% in June and recorded a 12-month drop of 0.6%.
  • Construction fell 0.7% on month, most in 3 months, and 0.2% over the 12 months through June.
  • The goods and services trade balance in June swung into surplus (GBP 1.779 billion) for the first time in 86 months, while the deficit on goods narrowed GBP 3.9 billion to a gap of GBP 7.0 billion.

Ten-year sovereign debt yields in the U.S., U.K. and Germany declined another three basis points each.

West Texas Intermediate crude oil shot up 3.4%, while Comex gold is little covered.

Share prices are mostly lower, with declines thus far of 0.6% in the United States and France, 0.9% in Germany and Spain, 0.7% in China, and 0.5% in Hong Kong. The Japanese Nikkei went up 0.4%, however.

The latest central bank to cut its benchmark interest rate is the Central Reserve Bank of Peru, whose reference rate was lowered late yesterday to 2.5% from 2.75%. The statement announcing the decision cites the widely experience havoc being spread by changes in U.S. trade policies by the Trump Administration: “Global growth risks persist and the recent escalation in trade tensions exacerbated international financial volatility.” The statement also references supply shocks in some of Peru’s primary industries and projects continuing in-target inflation. The reference rate had been at 2.75% since a hike in May 2017.

Japanese real GDP grew 0.4% in the second quarter (1.8% at an annualized rate). Compared to a year earlier, GDP was up 1.2%. The GDP price deflator was unchanged on quarter and up 0.4% on year. Three-fourths of the quarter-on-quarter rise in real GDP in 2Q was attributable to a 2.5% advance in personal consumption. Public sector spending and business investment also lifted GDP, but net exports and inventories exerted drags on growth.

Japanese on-year money growth was 2.5% last quarter after 2.3% in 1Q and 2.9% in 2018.

Chinese CPI inflation accelerated 0.1 percentage point to a 16-month high of 2.8% in July, but PPI inflation shifted from zero percent in June to minus 0.3% last month.

Germany experienced a EUR 20.6 billion current account surplus in June, slightly less than expected. The surplus of EUR 126.4 billion in the first half of 2019 was slightly less than a year earlier. The seasonally adjusted merchandise trade deficit in June of EUR 18.1 billion was smaller than the second-quarter average surplus of EUR 19.1 billion. Germany is among the most damaged economies from Trump’s trade war. German exports of goods dipped 0.1% on month and fell 8.0% on year in June.

French industrial production sank 2.3% on month and was unchanged from a year earlier in June.

Italian CPI inflation slowed to a 31-month low of 0.4% in June. Italy also reported the largest trade surplus in two year totaling EUR 5.728 billion in June. The first half surplus was EUR 22.1 billion versus EUR 19.1 billion a year earlier.

Norwegian producer prices fell 1.2% last month, and the 12-month contraction of 8.6% represents a 37-month low. Norwegian consumer price inflation stayed unchanged at 1.9% last month, matching June’s 17-month low.

Canadian July labor statistics were disappointing. The jobless rate there increased to 5.7% from 5.5% in June, and jobs contracted by 24.2k after a 2.2k slide in June. Housing starts, which rose to 209k in June from 205.8k in May told a better story than the labor market.

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

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