Blame It on the British: Bond Yield Distress Extended

July 6, 2016

The 10-year Treasury yield touched a fresh low for the move earlier today of 1.318%.  It closed on June 23 at 1.75% just before the shocking Brexit vote result became known.  The 10-year Japanese JGB is off two basis points at negative 0.27%.  The sovereign debt yields in Germany and Switzerland are also below zero.  The 10-year British gilt, has declined to 0.76% from 1.37% just before the Brexit outcome.

Minutes from the FOMC meeting in mid-June get released today at 18:00 GMT (14:00 EDT).

Comex gold advanced by a further 0.9% overnight to $1,370.70 per ounce.

West Texas Intermediate crude oil eased by a further 0.4% to $46.41 per barrel as investors adjust to a dimmer global economic outlook caused by the British vote.

Share prices in the Pacific Rim closed down 1.9% in Japan and South Korea, 1.6% in Taiwan, 1.5% in Hong Kong, 0.9% in Indonesia and 0.6% in Australia.  Losses in Europe so far amount to 2.0% in France and Germany, 2.1% in Italy, and 1.5% in Great Britain.

The yen moved closer to 100/USD, rising 0.9% overnight.  Sterling dropped 0.8% and to below the $1.3000 level.  EUR/USD is steady.  So is the yuan, which remains at a 5-year low.

The Swedish Riksbank left its repo rate unchanged at negative 0.50%.  The most recent change had been a 15-basis point cut last February.  Monetary authorities agreed to continue quantitative stimulus (bond buying) in the second half of this year.  They revised down growth and inflation, expressed a readiness to ease further if needed, and signaled a later onset of eventual tightening.

The National Bank of Poland retained a 1.50% main interest rate as expected.  European monetary authorities including those in Poland and Sweden now face greater uncertainty because of the ill-advised British vote to leave the EU.

The U.S. trade deficit widened to $41.144 billion in May from $37.383 billion in April, bringing the year-to-date shortfall to $200.399 billion versus $207.569 billion in the first five months of 2015.  Deficits widened between April and May with the EU, China and North America.

The U.S. non-manufacturing purchasing managers index rose 3.6 points to 56.5 in June, indicating a more rapid expansion rate.  Production, orders, and employment each posted significantly improved conditions.

Canada’s trade deficit narrowed to C$ 3.277 billion in May from C$ 3.317 billion in April but was larger than the year-earlier deficit of C$ 2.762 billion.  Exports and imports recorded similar month-on-month declines of 0.7% and 0.8% in the latest month.

German industrial orders disappointed in May with no change vis-a-vis their April level.  Orders consequently remained lower than a year earlier by 0.2%.  Orders in April-May averaged 0.5% less than the mean 1Q level. Domestic demand in May fell 1.9%, while export orders partly reversed April’s 4.3% tumble with a 1.4% rebound.

Euroland’s retail purchasing managers index fell to a 2-month low of 48.5 in June despite quickening expansion rates in Germany and France.  Italy’s retail PMI of 40.2 after 45.2 the month before revealed a rapid contraction pace.

U.S. mortgage applications jumped 14.2% last week, as the 30-year fixed rate mortgage fell nine basis points to a 37-month low of 3.66%.

Germany’s construction purchasing managers index slumped 2.3 points to a 10-month low of 50.4 in June.  Such was a buoyant as 59.5 just four months earlier.

The private PMI of Hong Kong slid to a 2-month low of 45.4 in June.  That was the second worst reading since last August, moreover.

British new car sales were 0.8% lower than a year earlier in June.

ECB President Draghi gives a speech later today.

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

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