A Newsworthy Start to the Week

May 23, 2016

At the weekend meeting in Japan of Group of Seven finance ministers and central bankers, participants disagreed over the yen, expressed concern about Brexit and, more generally, the outlook for global growth, and pledged coordinated effort to prevent the financing of terrorism.  U.S. Treasury Secretary Lew towed the precedent pledge not to engage in competitive devaluation, while his Japanese counterpart defended a role for intervention to guard against speculative one-sided appreciation in Japan’s currency.  There was unanimous consensus that a British vote to leave the European Union would deal a serious blow to the global economy, which is already fragile.

The most dovish Fed official, Boston Fed President Rosengren, signaled a rising readiness to support a federal funds hike relatively soon.  Markets are discounting a greater probability that the increase will happen at the July meeting than next month.

West Texas Intermediate crude oil slumped 1.2% to $47.82 per barrel.  The OPEC meeting set for June 2 is not expected to impose a production cut. 

Metal prices like iron, copper and nickel also declined overnight.  Gold dipped 0.3% to $1,249.60 per troy ounce.

The dollar fell 0.6% against the yen but rose that amount against the Turkish lira.  The yen benefited from news of the largest monthly Japanese trade surplus in several years and from G7 opposition to unilateral Japanese foreign exchange intervention.  Turkey’s currency was depressed by a further power consolidation of the country’s authoritarian president.

The U.S. dollar otherwise is narrowly mixed, edging up 0.3% against the loonie and 0.1% relative to sterling, the euro, the Australian dollar and the yuan.  Swissie is unchanged against the dollar, and the kiwi edged up 0.1%.

Among 10-year sovereign debt yields, the British gilt and German bund are down two basis points and a basis point.  Futures trading point to a drop in U.S. Treasury yields, but the 10-year JGB yield recovered two basis points to -0.10%.

European share prices have fallen 2.4% in Italy, 0.9% in France, 0.8% in Spain, 0.7% in Germany and 0.3% in Great Britain.  Japan’s Nikkei closed down 0.5% at 16,655, but stocks rose 1.6% in Australia, 2.6% in Taiwan, 0.6% in China, 0.7% in Indonesia and 0.4% in South Korea.

Canada is observing the Victoria Day holiday.

Japan’s government released its May economic assessment, which was the same as in April.  Official maintain that the economy is recovering moderately but that recent weakness can be seen.  Exports and industrial production are flat, and consumption is almost so.  Investment has picked up, and the labor market is improved.

Japan’s customs trade surplus widened to JPY 427 billion seasonally adjusted in April from JPY 295 billion in March, JPY 188 billion in February and JPY 127 billion in January.  The unadjusted JPY 823 billion surplus compares to a 58 billion deficit a year earlier.  Over that year, imports dived 23.1%, and exports fell 10.1%.

Japan’s all-industry index, a monthly proxy of GDP, edged up 0.1% in March but was down 0.1% in the first quarter, which is the fourth consecutive quarter not to show an increase.  The all-industry index was 0.1% lower than a year earlier.

Japan’s index of leading economic indicators was revised upward to a reading of 99.3 in March.  That was still below 98.9 in February and 100.5.  The index of coincident economic indicators printed at 111.1, up 0.4 points from February, but still sufficiently depressed to earn a trend designation of “weakening” from officials.

Japan’s preliminary manufacturing purchasing managers index fell 0.6 points further below the 50 no change mark to a 41-month low of 47.6.  Output and orders contracted at their fastest pace in 25 months and 41 months, respectively.

After posting on-year increases of 2.3% in January and 3.4% in February, Japanese supermarket sales fell 0.3% in March and 0.7% in April from a year earlier.

Preliminary purchasing manager survey results for Euroland, Germany, and France were reported covering the month of May.

  • The composite eurozone PMI reading of 52.9 was at a 16-month low but just 0.1 below April’s score.  While services printed at 53.1 for a third straight month, the manufacturing PMI dropped 0.2 points to a 3-month low.  The deterioration from April was concentrated in countries other than Germany and France.  The data are consistent with a slowdown of Euroland GDP growth in the spring quarter to about 0.3%.
  • The German composite PMI of 54.7 was at a 5-month high.  The manufacturing component was also the best in five months, while services rose to a 3-month peak.
  • France’s composite PMI advanced to 51.1 in May from 50.2 in April, 50.0 in March, and 49.3 in February.  Improvement was led by services, which advanced 1.2 points to a 7-month high of 51.8.

Consumer confidence in May was at a 7-month high in Denmark, a 4-month high in Turkey and unchanged in The Netherlands.  Dutch consumer spending in March exceeded its year-earlier level by 0.9%.

Swiss M3 money growth accelerated to a 12-month rise of 2.3% in April from 1.8% in May.

In the year to April, consumer prices fell 0.5% in Singapore but rose 2.7% in April.

Williams, Bullard, and Harker of the Fed are slated to speak publicly today.  The Bank of Israel announces its latest interest rate policy decision.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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