Better Financial Market Tone Continues

August 27, 2015

The Kansas City Fed’s annual economic policy symposium in Jackson Hole, WY begins today.  The topic of this year’s central banker conference is “Inflation Dynamics and Monetary Policy.”  While Chairperson Yellen will not be attending, Vice Chair Stanley Fisher’s speech on Saturday, the final day of the gathering, is the most eagerly awaited event.  Remarks yesterday by NY Fed President Dudley cast doubts on the likelihood of an interest rate hike in September and lent a more positive tone to world financial markets.

A fresh support to the market’s mood was added today by much better-than-expected U.S. GDP data.  Growth last quarter was revised upward to 3.7% annualized compared to 1Q from an initial estimate of 2.3%.  Non-residential investment growth was revised to 3.2% from -0.6%.  The strong growth in 2Q was accompanied by subdued inflation.  The real personal consumption price deflator rose 0.2% in the year to 2Q15 following on-year increases of 1.7% in 2Q14 and 1.3% in 2Q13.  The core PCE deflator went up 1.3% in the year to 2Q15 after rise 1.6% in the prior four quarters and 1.5% between 2Q12 and 2Q13.

The dollar has risen 0.6% against the euro and yen, 0.5% relative to the Swiss franc and 0.3% versus sterling.

Commodity-sensitive currencies continue to revive against the U.S. currency.  The kiwi, loonie, and Australian dollar advanced 0.6%, 0.5%, and 0.3% overnight.  The yuan firmed 0.2%, alleviating some concern about China.  The Shanghai Composite index of Chinese share prices jumped 5.3%.

In other stock market action, equities rose 4.7% in Hong Kong, 4.6% in Indonesia, 2.5% in Singapore, 1.2% in Australia, 1.1% in Japan, and 0.7% in South Korea.  In Europe, share prices are up 3.4% in France, 3.2% in Germany, 3.0% in Spain, 2.8% in Switzerland, 2.9% in the U.K. and 2.6% in Italy.  U.S. stocks extended Wednesday’s advance by 1.2% in the first hour of trading on Thursday.

West Texas Intermediate crude oil jumped 3.7% to $40.01 per barrel.

Comex gold has drifted 0.4% lower to $1,120.50 per troy ounce.

Ten-year sovereign debt yields climbed nine basis points in Greece, four bps in Britain, three bps in Japan and two more basis points in the United States and Germany.

Lending relevance to the Jackson Hole Symposium’s topic this year, German import prices in July were today reported to have posted a third straight monthly decline, this time of 0.7%, along with a 1.7% 12-month rate of decrease, most since February.  The cost of imported energy plunged 4.8% on month and 25.0% on year.  Non-energy import prices were flat on month and 2.5% higher on year.  German export prices edged up 0.1% on month and 1.2% on year.

In other price news, Icelandic CPI inflation rose 0.3 percentage points to 2.2% in August, and South African PPI inflation fell to 3.3% in July from 3.7% in June.  Japanese consumer prices will be reported Friday.

Eurozone monetary aggregates and credit growth were reported today.  M3 growth accelerated from 4.9% on year in June to 5.3% in July, but the 3-month average on-year pace stayed level at 5.0%.  Faster M1 money growth was the main dynamic in July.  Private loans rose 0.7% on year.  Loans to non-financial firms picked up to a pace of 0.9% from 0.2%.

Euroland’s indices of leading and coincident economic indicators rose 0.3% and 0.1% in July after posting a 0.5% rise and a 0.1% dip in June.

Swiss industrial production plunged 2.5% between 2Q14 and 1Q15 and 11% between June 2014 and June of this year.

The Nationwide index of British house prices decelerated in August to gains of 0.3% on month and just 3.2% on year, the smallest 12-month advance since mid-2013 and down from 11.8% in mid-2014.

Other released U.S. data today showed

  • A decline in new jobless insurance claims to 271K last week from 277K the week before.  The four-week average pace was 272.5K versus 274-3/4K in the prior four weeks.
  • The Bloomberg weekly measure of consumer comfort improved to a 42.0 reading last week form 41.1.
  • Pending home sales in July rebounded 0.5% after suffering a 1.7% setback in June.  July’s bounce was less than forecast.

Japanese stock and bond transactions generated a net JPY 451 billion capital outflow last week, 5.2 times greater than the outflow in the previous week.

Filipino real GDP accelerated in 2Q15 to quarter-on-quarter growth of 1.8% and an on-year pace of 5.6%.

The Thai and Mexican trade balances in July were respectively in surplus by $770 million and in deficit by $820 million.

Average weekly earnings in Canada increased 1.9% in the year to June, up from a 19-month low of 1.4% in May.

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

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