Pound Up on Reduced Brexit Fears

May 24, 2016

A new phone poll by Daily Telegraph revealed a widening margin of voters favoring Britain staying in the European Union (55% to 42%), and sterling rose 0.9% against the dollar in response.

The U.S. currency otherwise climbed 0.9% against the Aussie dollar, 0.6% versus the kiwi, 0.3% vis-a-vis the euro and yen, 0.2% relative to the Swiss franc and 0.1% against the loonie.  The yuan is steady.

Share prices in the Pacific Rim closed mostly lower, but those in Europe have mostly rebounded.  Equities fell 0.9% in Japan and South Korea, 0.8% in in China, 0.7% in Indonesia, 0.6% in Singapore, 0.5% in Taiwan and New Zealand, and 0.4% in Australia.  Stocks in Europe have climbed 1.6% in Italy, 1.4% in France, 1.0% in Germany, 1.1% in Spain and 0.8% in Britain.

Ten-year German bunds and Japanese JGB yields slid a basis point.  The 10-year British gilt is unchanged.

Among commodities, Comex gold and WTI crude oil prices are down 0.8% and 0.3%, while copper has advanced 0.7%.

Turkey’s central bank took another step toward simplifying its interest rate structure, narrowing the overnight rate corridor by a further 50 basis points visa a cut in the overnight lending rate to 9.5% from 10.0%.  The one-week repo rate was kept at 7.5%, and the overnight borrowing rate stayed at 7.25%.  Hungary’s central bank also has a scheduled interest rate announcement today.

First-quarter GDP details were reported for Germany, confirming the preliminary estimates of a 0.7% quarter-on-quarter increase, a 1.3% on-year pace and a working day-adjusted 1.6% increase from a year earlier.  Among components of demand between 4Q15 and last quarter, personal consumption and government consumption went up 0.4% and 0.5%.  Business spending on machinery and construction rose 1.9% and 2.3%.  Import growth outpaced output growth by 1.4% to 1.0% and depressed GDP growth by 0.1 percentage point.  But inventory building augmented the GDP growth rate by 0.1 percentage point.  Nominal GDP advanced 3.1% between the first quarters of 2015 and 2016.

The ZEW Institute’s May indices of investor sentiment toward Germany and Euroland, however, reveal a distrust that last quarter’s acceleration of growth will be sustained.  For Germany, the expectations index dropped back to a reading of 6.4 after rising to 11.2 in April from 4.3 in March and 1.0 in February.  Current conditions in Germany carried an improved 53.1 reading after 47.7 the month before.  For the eurozone, expectations dropped 4.7 points to 16.8 in May, while current conditions rose 2.9 points but remained negative at -9.2.

The Confederation of British Industries’ monthly distributive trades index returned to a reading of +7 in May after swinging from that same score in March to -13 in April.  British budget data for April, the first month of the new fiscal year, were unremarkable.

The French manufacturing sentiment index slipped back by one point to a 104 score in May after rising 3 points in April.  Service sector sentiment rose two points to 100, in contract, while construction sentiment remained at 95. 

Czech business sentiment climbed 0.5 points to 13.2 in March, while consumer sentiment in that economy stayed at a reading of 2.0.  Brazilian consumer confidence rose to 67.9 this month from 64.4 amid a change in that country’s president.  One should not count on this improvement being sustained.

The European Central Bank’s chief economies, Praet, said officials are very determined to ensure that the economy does not slip into deflation.

The Swiss trade surplus of CHF 2.50 billion in April was 14.7% larger than March’s surplus.

Finnish producer prices fell 4.7% in the year to April, a half-percentage point more than the reported on-year decline in March.  Finnish seasonally adjusted unemployment stayed at 9.1% in April.  Swedish unemployment dipped 0.1 percentage point to 6.9%.  Icelandic wage inflation was 13.4% last month.

Australia’s index of leading economic indicators (LEI) edged up 0.1% in March, while South Africa’s LEI was 0.3% higher.

U.S. new home sales figures get released today.  Interest is mounting in Fed Chair Yellen’s speech at Harvard this Friday for clues to whether the Fed will raise interest rates next month, or in July, or perhaps even later.  A slew of remarks recently from other officials have pointed to an increase sooner rather than later, and markets now discount a 1 in 3 possibility of such happening at the June meeting.

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

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