The Day After

August 1, 2014

One day after share prices hit an air pocket, investors received a lot more high-profile economic news including the U.S. July Labor Department report on jobs and unemployment and numerous manufacturing purchasing manager surveys, also for July.

Back to form, the dollar hasn’t moved much further.  The greenback has changed most against sterling, +0.3%, and risen 0.1% against the yuan and loonie.  Dollar/yen is unchanged, while the U.S. currency has slipped 0.2% relative to the Swiss franc and by 0.1% against the euro, kiwi, and Australian dollar.

In the Pacific Rim, share prices fell by 1.6% in India, 1.4% in Australia, 1.1% in New Zealand, 0.9% in Singapore, Hong Kong and China, and 0.6% in Japan.  In Europe, stocks have slumped 1.9% in Spain, 1.8% in Germany, 1.3% in Britain, 1.1% in France, 1.0% in Switzerland and 0.6% in Italy.

The ten-year U.S. Treasury yield had been higher but is now two basis points lower on balance.  Ten-year sovereign debt yields in Germany and Britain are a basis point and two bps higher, while the Japanese JGB is steady.

Oil fell by 0.7% to $97.47 per barrel.  Gold is 0.1% firmer at $1,284.30.

On the geopolitical front, Gaza fighting enjoyed only the briefest of cease fires.  The situation there looks bleak.  Sanctions against Russia for Putin’s reprehensible behavior are being ramped up.

The U.S. jobs report brought mixed news.  Nonfarm payroll employment went up 209K in July, and jobs growth for May-June was revised upward by a combined 15K.  Although the 209K advance was not quite as much as forecast, it was the sixth in a row of at least 200K, and that’s the longest such streak since the first seven months of 1997.  Labor participation, which Fed officials are watching very carefully, ticked up 0.1 to 62.9%, but the jobs-to-population ratio stayed at 59.0%.  Both ratios are historically very low.  Wage growth was zero on month and held steady at 2.0% on year, down from 2.4% in May.  Unemployment ticked back up to 6.2%, and the broadest measure of un- and under-employment, 12.2%, was also 0.1 percentage point higher.

U.S. personal income and spending data for June showed a 0.4% increase in spending, most since March but just 0.2% in inflation-adjusted terms.  Personal income also rose 0.4%, but real disposable income climbed only half as much.  The personal consumption price deflator rose 0.2% on month and slowed in year-over-year terms to 1.6% from 1.7% in May.  Excluding energy and food, the PCE price deflator edged up 0.1% on month and continued to show a 12-month increase of 1.5%.

Euroland’s purchasing managers index for manufacturers printed in July at 51.8, marginally under the preliminary indication and the same result as in June, which then was a 7-month low.  Among Ezone members, France’s 47.8, a 7-month low, reflected deepening contraction.  Greece scored a 9-month low of 48.7 and the second sub-50 outcome in a row.  Italy’s 51.9 was an 8-month low, and Spain’s 53.9 was below June’s 50-month high of 54.6 and even with the print in May.  Germany and Ireland improved to 3-month highs of 52.4 and 55.4, while the Dutch and Austrian PMIs of 53.5 and 50.9 represented 2-month highs.

Japan’s manufacturing PMI of 50.5 was the third reading above the 50 threshold in a row but lower than the results in May and June.  Orders are still losing momentum in the wake of the sales tax hike on April 1.

The British manufacturing PMI of 55.4 was the 17th reading in a row above 50.  Such exceeded the long-term average score of 51.5  but was the lowest since last July 2013.

Australia’s factory PMI, 50.7, exceeded the 50 expansion-or-contraction threshold for the first time in nine months.

Two Chinese manufacturing indices were reported, and each was at 51.7 in July.  The HSBC index was down from a preliminary reading of 52.0 but nonetheless at an 18-month high, while the government-authorized PMI was the fifth above 50 in a row and at a 27-month peak.  Taiwan had a 55.8, up 1.8 points to a 39-month high. 

India’s 53.0 PMI reading for manufacturing was at a 17-month high but also indicated intensifying input price inflation.

The Russian PMI of 51.0 was impervious to the sanctions, breaking a string of sub-50 scores since October 2013.

Vietnam’s PMI fell 0.6 points to a 4-month low of 51.7.  Indonesia’s index stayed at 52.7, a record high in this comparatively short-duration time series. 

Turkey’s PMI dipped another 0.3 points to a 63-month low of 48.5.  Such was the second sub-50 score in a row.

In eastern Europe, Poland saw its first sub-50 score since June 2013, a drop of 0.9 points to 49.4.  The Czech PMI rebounded from June’s 6-month low of 54.7 to a 2-month high of 56.5. Hungary posted a record high of 56.5, 5.2 points better than the June reading.

Among some Nordic economies, Sweden scored 0.4 points better in July than June with a 55.2.  Norway’s index went up a full point to 50.6, a 3-month high after back-to-back sub-50 scores.  Denmark slipped by 0.6 points further in July to 50.7.

Australian producer prices fell 0.1% last quarter and decelerated in on-year terms to 2.3% from 2.5% in the first quarter.  Domestic PPI inflation stayed at 1.9%, while import price inflation slowed to 6.4% from 8.4%.

Switzerland is closed for a national holiday.

Bank of Japan Governor Kuroda spoke publicly and did not deviate from the optimistic tone he’s been voicing all along.  Japanese auto sales posted their first on-year advance in four months, a rise of 0.6% in July. 

South Korean CPI inflation ticked lower to 1.6% last month from 1.7% in June.  Thai CPI inflation ticked upward to 1.8% from 1.7%.  Thai producer prices were 1.2% higher than a year before in July.

Colombia’s central bank raised its interest rate by 25 basis points, its fourth hike in so many meetings.  Brazilian industrial output dropped 1.4% on month and by 6.9% on year in June when the World Cup games were played.

Still to come: U.S. PMI, auto sales, construction spending and U. Michigan consumer sentiment.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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