Sterling and Oil Slammed…Funds Seeking Bonds and Yen

July 5, 2016

The dollar rose 1.7% against sterling but fell 0.9% relative to the yen.  The greenback has also risen 1.0% against the loonie, 0.9% relative to the Aussie dollar and kiwi.  Dollar/euro and dollar/Swiss are little changed.

Commodities are sinking except in the case of precious metals like gold and silver.  West Texas Intermediate oil fell 3.3% to to $47.36 per barrel.  Comex gold is up 1.0%, but copper has dropped nearly 2%.

Among 10-year sovereign debt yields, the U.S. Treasury fell six basis points to 1.38% after the Independence Day holiday on Monday.  Gilt and bund yields have slipped four and three basis points.

Share prices in Europe have lost 3.4% in Greece, 2.0% in Spain, 1.9% in France and Germany, 1.7% in Switzerland but show little change in Britain.

After releasing its biannual U.K. financial stability report, the Bank of England cut banks’ capital buffer requirements to zero from 0.5%.   Governor Carney reiterated a very bearish view of the near-term British growth outlook.

Japan’s Nikkei lost 0.7%.  Other share price losses in the Pacific Rim amounted to 0.9% in Indonesia, 1.5% in Hong Kong, and 0.5% in Taiwan but the Shanghai Composite index in China went up 0.6%.

The Reserve Bank of Australia left the Official Cash Rate at 1.75%, the level since a 25-basis point cut in May, and released a statement endorsing a wait and see approach pending more information to clarify the outlooks for Aussie growth and inflation.

The Australian trade deficit widened back to A$ 2.218 billion in May from A$ 1.785 billion in April and A$ 2.201 billion in March.  Retail sales in Australia only firmed 0.2% on month in May following a 0.1% uptick in April.  That cut the 12-month rate of increase to 3.3%.

Euroland’s service-sector purchasing managers index printed at the lowest level in over a year, 52.8 in June. Germany’s 53.6 reading was at a 13-month low.  The Irish and French indices were at 2- and 3-month lows.  The composite PMI of 53.1 matched May’s reading, and the 2Q average score was the lowest since 1Q14.  Euroland did not recover momentum in June despite better manufacturing, and now the Brexit vote points to more difficulties ahead.

Britain’s services PMI in June returned to April’s 38-month l ow of 52.3 from 53.5 in May.

The Swedish services PMI of 53.4 was at a 2-month low.

Although China’s services PMI increased 1.6 points to an 11-month high of 52.7, manufacturing was so weak that the overall composite purchasing managers index fell to a 4-month stagnating low of 50.3.

The Japanese services PMI and composite PMI readings of 49.4 and 49.0 were both 2-month lows.  The second quarter was the weakest in five quarters on average.

India’s services PMI dropped 0.7 points to 50.3 in June, a 7-month low.  The composite Indian PMI rose 0.2 to 51.1, a 2-month high but still low.

Russia’s composite PMI of 53.5 was at a 40-month high, and its services PMI improved 2.0 points to 53.8.

Australia’s Performance of Services index dipped 0.2 points to a 2-month low of 51.3.

Singapore’s private purchasing managers index went up 2.2 points to a 5-month high of 52.3 in June.

South Africa’s Standard Bank-compiled private PMI weakened from a 13-month high of 50.2 in May to a 2-month low of 49.6 last month.

Brazil’s services and composite PMI readings of 41.4 and 42.3 were deeply below the 50 no change line of demarcation, yet each represented a 5-month high.

Retail sales volume in the eurozone increased in May by an as-expected 0.4% on month and 1.6% on year, but April-May combined was essentially unchanged from the first-quarter average.

In the year to May, industrial production rose 6.6% in Ireland and 1.7% in Sweden.  Retail sales advanced 15.2% in Romania and 5.7% in Hungary.

Several U.S. economic indicators were reported.  Factory orders fell 1.0% in May, due mainly to a 2.3% drop in durables.  The Investment Business Daily TIPP optimism index of investor sentiment sank to an 8-month low in July of 45.5 from 48.2 in June and 48.7 in May.  The New York regional PMI known as the NAPM index recovered to a 2-month high of 45.4 in June from 37.2 in May.  Such had printed in April at 57.0.  U.S. share prices, like other stock markets around the world, opened lower after the 3-day holiday weekend.  Confidence remains low in the outlook for global growth, and data reported today didn’t break this gloom.

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

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