A Turn for the Worse in Ukraine and Lots of Data to Peruse

August 28, 2014

Pro-Russian rebels in Ukraine stepped up their attacks, seizing more territory.  Ukraine’s prime minister called the act a de facto invasion by Russia.  Harsher European economic sanctions on Russia appears the likely response.

The main market reaction has been in stocks, bonds and gold, not the dollar

  • The U.S. currency is unchanged overnight against the kiwi, loonie and sterling, down 0.2% relative to the Canadian dollar and off 0.1% vis-a-vis the yen and yuan.  The dollar rose 0.2% against the euro and 0.1% versus the Swiss franc.
  • Equities fell by 0.7% in Hong Kong and China, 0.5% in Australia, 0.4% in Japan and 0.3% in Singapore.  Stocks have declined 1.5% in Italy, 1.4% in Germany, 1.0% in Spain, 0.7% in France, and 0.3% in Britain.  The Dow slumped 0.5% in the first 20 minutes of trading.
  • Ten-year sovereign debt yields fell by 3 basis points in the United States and a basis point each in Britain, Germany and Japan.
  • Gold advanced 0.9% to $1,294.60 per ounce.  Oil is up 0.2% at $94.04 per barrel.

More disappointing European statistics were reported.

German jobs rose just 1K in August, less than expected after a net 4K decline in the prior two months.

Italian manufacturing confidence fell 3.4 points to a 12-month low of 95.7 in August.  Overall business sentiment printed at 88.2, down from 90.8.  Italian wage inflation slowed to 1.1% in July.  Italian retail sales plunged 2.6% in June, more more than assumed, and posted a 1.0% on-year drop in the first half of 2014.

Austria’s manufacturing purchasing managers index remained at 50.9.  Such was the third such score in four months, and it implies just marginal expansion.

Germany’s inflation rate remained at 0.8% in August, low enough to sustain a risk of deflation in the wider Ezone.  However, the failure to decline may delay ECB stimulus.  Euroland announces its preliminary inflation rate tomorrow.

Euro area economic sentiment fell another 0.5 points to a reading of 100.6 in August, which was an 8-month low and the third drop in a row.  Confidence among consumers and in manufacturing, services, retail and construction all weakened this month.

Swedish retail sales fell 0.7% in July.  Analysts were looking for an increase.  The 12-month rate of increase slowed to 2.3% from 3.4%.  In the three months to July, sales were 0.2% below the average of the previous three months.

Euroland M3 money accelerated to 1.8% on year in July from 1.1% in the second quarter.  Loans to the private sector fell 1.6% on year in July, including a 2.3% drop in lending to non-financial companies.

The Confederation of British Industry reported an improved distributive trends index of 37 in August versus 21% in July.

Danish business sentiment bounced back to a reading of minus 6 in August after sliding from -7 in June to -13 in July.

Spanish GDP was only 1.2% higher in 2Q than a year earlier.  Consumer prices in Spain fell 0.5% between August 2013 and August 2014.

Chinese industrial corporate earnings grew only 13.5% between July 2013 and July 2014, down from 17.9% in the year to June.

New home sales in Australia recorded their largest month-on-month drop in July since March 2012, a decline of 5.7%.

On-year growth in the Philippines slowed to 1.9% in 2Q14 from 5.6% in the first quarter of this year.

The Canadian current account deficit last quarter of C$11.87 billion was very close to analyst forecasts, 1.3% narrower than in 1Q, and 22.8% smaller than in the second quarter of 2013.  The trade surplus (C$ 1.66 billion) was in the black for a second straight quarter, and net investment payments shrunk by C$ 479 million between the first and second quarters.

U.S. real GDP growth last quarter was revised to 4.2% from 4.0% reported initially.  GDP was 2.5% higher than a year earlier after posting on-year increases of 2.3% and 1.8% in the second quarters of 2012 and 2013, respectively.  In annualized terms of first quarter-to-second quarter growth, consumption went up 2.5%, nonresidential investment grew 8.4%, residential construction rose 7.2% and even government expenditures climbed 1.4% .  Net exports subtracted 0.43 percentage points from the GDP growth rate, but inventory building added 1.39 percentage points of growth.  The on-year rise of the PCE price deflator was 1.6% compared to 1.1% in 2Q13, 1.7% in 2Q12 and 2.6% in 2Q11.  Excluding food and energy, the personal consumption deflator rose 1.5% in the year to 2Q14 and has also averaged 1.5% per annum over the past four years.  That’s below the goal of 2.0%, so the core PCE deflator could in theory climb at a 2.5% annualized pace between 2Q14 and 2Q18 — exceeding the pace during the last four years by a whole percentage point — and still end up with an 8-year growth rate of 2.0%, thus matching the medium-term objective.

U.S. new jobless insurance claims of 298K last week were nearly identical to the 299K amount in the previous week.  Such averaged 299-3/4K over the latest four-week period, compared to a mean of 304.4K during the previous twelve weeks.

U.S. pending home sales were well above expectations in July, rebounding 3.3% from a 1.3% drop in June.  Still to come, the Kansas City Fed manufacturing index; The KC Fed recently hosted the Jackson Hole Symposium and has for some time been a proponent with the Federal Reserve System of a less stimulative policy stance.

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

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