Some Optimism from Three Fronts
August 29, 2019
Investors continue to believe that the U.S. and China can work out some kind of truce in the trade war.
It is also thought the resignation of the Scottish Conservative Party leader, Ruth Davidson, may impede British Prime Minister Johnson’s ability to pull the U.K. out of the EU without any negotiated deal on October 31.
Euroland economic sentiment unexpectedly improved marginally in August, rising to a two-month high of 103.1 from a 40-month low of 102.7 in July. The readings for the industrial sector and retail sector rebounded to 2-month highs, while consumer confidence and construction sentiment softened.
The key EUR/USD relationship remained astonishingly stable overnight, with no net change from Wednesday’s closing level. The dollar is also unchanged against sterling, shows 0.1% upticks versus the yen, Swiss franc and peso and downticks of 0.2% relative to the kiwi, Aussie dollar, and yuan and of 0.1% versus the Canadian dollar.
Equity markets in the Pacific Rim were mixed today, with losses of 1.0% in India, 0.4% in South Korea, and 0.1% in Japan and China but rises of 0.8% in Singapore and 0.3% in Hong Kong and Taiwan. European stocks got a boost from the aforementioned economic sentiment data and have thus far advanced 1.9% in Italy, 1.3% in France, 1.1% in Germany and 1.0% in Great Britain.
Among commodity prices, oil is up 0.6%, while gold has edged 0.2% lower.
Ten-year sovereign debt yields firmed a basis point in Germany and the United States and slipped a basis point in the U.K. and Japan.
Other European data helped dispel pessimism about the region a bit.
- French real GDP growth in the second quarter was revised up 0.1 percentage point to 0.3% compared to the prior quarter and 1.4% from a year earlier.
- French consumer spending rose 0.4% on month in July, most since January.
- Spanish business sentiment climbed to a 16-month high in August.
- Portuguese consumer confidence rose to a 7-month high in August.
Not all European data released today were reassuring. For one thing, price data were disinflationary in tone.
- German CPI inflation settled back 0.3 percentage points in August to a joint five-month low of 1.4%.
- Italian PPI inflation fell below zero for the first time in 32 months, swinging form 0.9% in June to minus 0.5% in July.
- Spanish consumer prices slipped 0.1% on month in August, dampening the 12-month rate of rise to a 35-month low of 0.3%.
Italian industrial orders sank 0.9% on month in July and 4.8% on year. The 12-month drop was the most since July 2016 and was associated with a 0.8% year-on-year drop in industrial sales.
Norwegian real GDP posted a smaller year-on-year rise of 1.4% last quarter, down from 2.0% in the first quarter of 2019.
Swedish consumer confidence fell 2.5 index points to a 2-month low in August.
Industrial production in Cyprus was unchanged in June from a year earlier following small year-on-year rises in April and May.
The German labor market, which for years had been sizzling hot, is now reflecting the pain of Trump’s trade war. On-year employment growth fell to 0.8% in July from 1.0% in the second quarter and 1.1% in 1Q. July saw the number of unemployed workers fail to fall for a third straight month. And the jobless rate has been stalled at 5.0% since May.
There were three central banking notes of interest. The Bank of Israel released a dovish statement after leaving its key interest rate at 0.25%. Richmond Fed President Barkin is the latest U.S. monetary official to publicly resist White House calls for aggressive easing. He wants to assess the effect of July’s 25-basis point rate cut first and is unconvinced that low inflation per se warrants much more forceful stimulus. Finally, Bank of Japan Governor Suzuki towed the majority line of caution on stimulus, asserting that prolonged very low interest rates has negative as well as positive effects.
Highlights from data released in the Pacific Rim today are as follows:
- Japanese consumer confidence dropped to a 64-month low in August.
- South Korean business sentiment softened in the latest month in both manufacturing and non-manufacturing.
- The ANZ index of New Zealand business sentiment printed at minus 52.3, its worst reading since April 2008.
- Private business investment in Australia fell 0.5% on quarter in 2Q19 after a 1.7% drop in 1Q. Such was the fourth drop in five quarters.
- Turkey’s trade deficit of $18.07 billion in January-July was down from $46.8 billion a year earlier.
- PPI inflation of minus 6.0% in the Philippines in July constituted a 35-month low.
- Malaysian PPI inflation remained below zero in July as was in each month of the first half of this year. The 12-month 2.2% drop notched in July was the most since January.
South African PPI inflation slowed to a 5-month low of 4.9% in July, having crested at 6.5% back in April.
Canada’s current account deficit dived to C$6.384 billion last quarter from C$ 16.629 billion in the first quarter. The 2Q imbalance was the smallest deficit since the last quarter of 2008.
Brazilian real GDP posted a 0.4% on-quarter advance in 2Q after a dip in the first quarter. Two and a half years after returning to positive on-year growth, GDP last quarter was only 1.0% greater than a year earlier, however.
Just in: U.S. real GDP growth last quarter was revised 0.1 percentage point lower to 2.0%, roughly matching expectations, and on-year growth was unrevised at 2.3% versus 3.2% in the four previous quarters ending 2Q18. Personal consumption and government spending augmented GDP growth by 3.9%, but business investment, net exports, and inventories exerted a combined 1.8 percentage points of drag on the growth rate last quarter. The PCE and core PCE price deflators recorded on-year rises of 1.4% and 1.5%, well below the Fed’s target. Separately, the advance estimate of the U.S. trade deficit in July was $72.34 billion after $74.2 billion a month earlier. And new jobless insurance claims last week totaled 215k and was associated with a 214.5k four-week average.
Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Canadian current account, Euroland economic sentiment, French GDP, Ruth Davidson, U.S. GDP
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