Several Pieces of Good News

May 25, 2016

Yesterday’s strong performance in North American equities carried over into Pacific Rim and European markets today.  Japan’s Nikkei closed 1.6% higher.  Shares also climbed 2.7% in Hong Kong, 2.3% in India, 1.5% in Australia, 1.3% in Indonesia, 1.2% in South Korea and Taiwan and 0.7% in New Zealand.  The Shanghai composite index dipped 0.2%, however, as officials fixed the yuan at a five-year low against the dollar.

But in Europe, stocks are up 1.9% in Spain, 1.0% in Italy, 1.2% in Germany, 0.9% in France, 0.6% in the U.K. and 0.4% in Switzerland.

The 10-year British gilt yield slipped two basis points to 1.45%.  The Japanese JGB firmed two bps to -0.09%, and German bunds are holding unchanged.

After a number of better U.S. economic data points including yesterday’s news that new home sales leaped 16.6% in April, there is discernibly less fear about the Federal Reserve’s mounting predisposition to raise rates this summer and possibly as soon as next month. 

European finance ministers, with the IMF’s blessing, agreed to release the third tranche of Greece’s debt bailout aid

ECB Vice President Constancio opined that another Fed rate hike would on balance be good for the world economy and predicted that inflation in the eurozone would be back at the central bank’s target by 2018.

Recent opinion polls in the U.K. highlight a shift in sentiment toward keeping Britain in the European Union.

West Texas Intermediate oil rose 1.1% to $49.17 per barrel. 

Comex gold is 0.6% softer.  Industrial metals have been mixed.

Several emerging market currencies appreciated overnight, especially the South Korean won.

The dollar is narrowly mixed against advanced economy currencies, with upticks of 0.2% against the yen and 0.1% relative to the yuan, downticks of 0.4% vis-a-vis the kiwi, 0.3% versus the Aussie dollar, and 0.2% against the loonie, Swissie and sterling, and no change relative to the euro.

German business climate, compiled monthly by the IFO Institute, jumped a whole point to a 5-month high of 107.7 in May, prompting Institute officials to say that Euroland’s largest economy is growing “at a robust pace.”  Current conditions rose a full point, too, to an 8-month high, and expectations went up 1.1 points to a 4-month high.  Manufacturing, construction, wholesaling and retail activity all improved in May.

German consumer confidence edged up 0.1 point to a nine-month high of 9.8 in June.

The Swiss ZEW expectations index, a barometer of investor sentiment, jumped 6 points to a reading of 17.5, best since October.  The UBS Swiss consumption indicator climbed 0.07 to 1.47 in April, a three-month high.

On-year British motor vehicle output growth accelerated to 16.4% in April, lifting the year-to-date pace to 10.8%.

In other news,

  • Italian industrial orders fell 3.3% on month in March, trimming the 12-month increase to just 0.1%.  Industrial turnover fell 3.6% on year.
  • Italy recorded a non-EU trade surplus of EUR 3.6 billion in April, 42% larger than a year earlier, and EUR 9.7 billion in January-April, up 17% on year.
  • Polish unemployment dropped to 9.5% in April from 10.0% in March and 11.1% in April 2015.
  • New Zealand’s NZD 292 million trade surplus in April was about five times wider than forecast.
  • Construction completions in Australia fell 2.6% between 4Q15 and 1Q16 and were 6.7% less than in the first quarter of 2015.
  • Spanish producer price deflation intensified in April.  The 6.1% on-year drop in the PPI was the most in 81 months.
  • Singapore quarter-on-quarter GDP growth in the first quarter was revised up to 0.2% from zero reported initially, but on-year growth held steady at 1.8%.
  • The MNI-Westpac measure of Chinese consumer sentiment fell 3.1% in May but was 2.8% higher than a year earlier.

The Bank of Canada is not expected to change its 0.5% overnight money rate target.  Its decision will be announced at 10:00 EDT (14:00 GMT).

The FHFA U.S. house price index gets released today.  More Fed officials are expected to speak publicly, but investors are more interested in what Chair Janet Yellen has to say on Friday.

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

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