Rate Hike in the U.K. Unlikely Until 2016

August 6, 2015

Sterling fell 0.6% overnight against the dollar, which otherwise shows gains of 0.2% versus the Swiss franc and Aussie dollar but losses of 0.4% relative to the kiwi and 0.1% vis-a-vis the loonie and euro.  The yen and yuan are unchanged against the dollar.

Share prices declined 1.1% in Australia, 0.9% in Indonesia and China, 0.8% in South Korea and 0.5% in Hong Kong.  Japan’s Nikkei firmed 0.2%, but equities are down 0.2% in Germany and Italy and by 0.1% in Spain and Great Britain.  In North America, the DOW is off 0.6%, and Canadian stocks have fallen 0.5%.

Ten-year sovereign debt yields fell by three basis points in the U.K., 4 bps in the U.S., and a basis point in Germany but the Japanese JGB yield is up 3 bps.

West Texas Intermediate oil sank 1.4% to $44.63 per barrel.  Comex gold rebounded 0.4% to $1,089.22 per ounce.

The German construction purchasing managers index (PMI) edged off 0.1 points to a 6-month low of 50.7, showing continuing near stagnation.

Global composite and service sector PMI’s compiled by J.P. Morgan revealed slightly faster growth in July but less inflationary pressure.

Euroland’s retail PMI jumped by 3.8 points to 54.2 in July, its highest score since July 2011.  German, French and Italian readings of 57.7, 52.9 and 50.7 compared with scores six months earlier of 52.3, 44.4, and 41.2.

Ireland’s service-sector PMI edged up 0.1 to 63.4 in July, a 106-month high.

Australian employment increased 38.5K last month.  There were 26.1K more part-time workers and 12.4K more full-time positions.  The labor participation rate increased to 65.1% from 64.8%, but the unemployment rate rose, too, to 6.3% from 6.1% in June and 5.9% in May.

The Bank of England voted 8-1 to keep the Bank Rate at 0.50% and the asset purchase program ceiling at GBP 375 billion.  Ian McCafferty favored a 25-basis point interest rate hike but was overruled by a committee majority that observed well-anchored inflation and predicted lower inflation just ahead and a return to the targeted 2% not until 2017.  Economic growth this quarter is likely to be slower than in 2Q.  Along with a new quarterly Inflation Report that was released, the key takeaway is that an interest rate hike in 2015 is doubtful.

The British Halifax house price index fell 0.6% in July, cutting its 12-month rate of climb to a 7-month low of 7.9%.  Real GDP according to the NIESR estimate rose 0.7% in May-July, same as its 2Q pace. New car sales in the U.K. showed a smaller on-year advance of 3.2% in July.

British industrial production missed expectations in June, dipping 0.4% on month and slowing to a 1.5% on-year advance.  Factory output went up 0.2% from May and a mere 0.5% from June 2014.

German industrial orders advanced 2.0% in June and 3.0% in the second quarter.  The improvement masked a 2.2% drop in domestic orders for capital goods, however.

The Czech National Bank retained its monetary policy settings, a 0.05% interest rate and an asymmetric foreign exchange policy committed to intervention to prevent koruna appreciation beyond 27 per euro but to allow the currency to weaken from that level it that happens.  The 27 koruna per euro cap will not be removed before the latter part of next year at the earliest.

U.S. jobless insurance claims amounted to 270K last week after 267K the prior week.  Such levels haven’t been sustained in around 40 years.

Japan’s index of leading economic indicators rose 5.2 points to a 16-month high of 107.2 in June.  The index of coincident economic indicators went up 0.7 points to 112.0 but was still classified as being in a “weakening trend” by officials.  Japanese stock and bond transactions generated a net capital outflow last week of JPY 27 billion after an inflow of JPY 418 billion in the prior week.

Swiss consumer confidence worsened 13 points to a reading of minus 19 in July.  Mexican consumer sentiment unexpectedly dropped 2.5 points to 92.2 in the same month. 

Consumer prices in the year to July fell 5.5% in Cyprus and rose 1.0% in The Netherlands.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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