Markets Moved Sharply by Politics and the Comments of Officials

July 12, 2016

Three developments cheered markets, which chose to look at good developments rather than the still-tense racial tensions in the United States:

  1. Pieces are falling quickly into place for the U.K. to get a new prime minister, Theresa May.
  2. In parliamentary testimony, Bank of England Governor Carney hinted that more stimulus will be forthcoming to counter recessionary risk.
  3. Likewise, the LDP’s big election win over the past weekend has been followed up by a fortified pledge from Prime Minister Abe to redouble reform and other efforts to rid Japan of its deflationary tendencies.

The dollar overnight fell 1.2% against sterling but rose 1.5% relative to the yen.  The greenback also lost 1.2% and 0.9% against the Australian and New Zealand dollars but has barely moved versus the yuan, euro or Swiss franc.

Equities have experienced another well-bid session in Europe and the Pacific Rim.  Share prices rose 2.5% in Japan, 1.8% in China and 1.6% in Hong Kong.  Stocks in Europe are up 2.2% in Spain, 2.9% in Italy, 1.5% in France, 1.4% in Germany but just 0.2% in Britain.

In the opening minutes of U.S. trading, the DJIA ricocheted off its all-time peak of 18,353.  U.S. stocks continue to trade higher than Monday’s close.

10-year sovereign debt yields have risen six basis points in the United States and Germany and three bps in the U.K. but are a basis point lower at -0.29% in Japan.

West Texas Intermediate oil leaped 2.8% to $46.03 per barrel.  Comex gold is down 0.5% at $1,349.40 per ounce, but industrial metals recorded another strong advance.

Japan’s tertiary index, which measures service sector activity, fell 0.7% in May, fully reversing April’s increase and leaving the April-May mean 0.2% softer than the first-quarter average level.  On-year change in the tertiary index remained steady at +0.7% in May.

Japanese domestic corporate producer goods prices slid for the twelfth time in thirteen months, dipping 0.1% in June and posting a 12-month drop of 4.2%.  Import prices increased 1.8% on month but dropped 12.9% on year.

The Bank of Japan’s quarterly household sentiment index fell 3.3 points to a reading of 72.4 in June, lowest in fourteen quarters.

The flash estimate of German CPI inflation in June was confirmed.  Consumer prices edged up 0.1% from May, and on-year inflation of 0.3% was the highest since March.  Energy increased 1.2% on month but fell 6.4% on year, while all other consumer prices dipped 0.1% on month and increased 1.1% on year.

German wholesale prices recorded a fourth straight month-on-month increase in June, this time of 0.6%.  A 12-month decline of 1.5% was down from 2.7% in April and the smallest on-year drop since January.  Energy jumped 4.6% from May.

U.K. same store sales, according to data compiled by the British Retail Consortium, posted a 12-month drop of 0.5% in June, quite a deterioration from a 0.5% increase in May and a 4.6% advance in the year to April.

In the year to June, Swedish consumer prices rose 1.0%.  Czech consumer prices ticked 0.1% higher, and Portuguese consumer prices went up 0.5%.  Core CPI in Poland dipped 0.2%, while overall consumer prices there edged up 0.2%.  Cypriot consumer prices fell 2.0% between mid-2015 and mid-2016.

Irish real GDP sank 2.1% on quarter in 1Q16, reducing on-year growth to 2.3%.  The Irish current account surplus in the first quarter of EUR 8.96 billion was 25% wider than that in the final quarter of 2015.

In the year to May, factory output in South Africa increased 4.0%, while industrial production in Malaysia rose 2.7%.

Brazilian consumer prices plunged 9.0% between May 2015 and May 2016.

Small business confidence in the United States, measured by the NIFB index, edged up another 0.7 points to a six-month high reading of 94.5 in June.  In March, such bottomed at 92.6.  The Labor Department’s JOLTS index revealed a reduction in job openings in May and little change in job hires or separations.  Investors await the weekly data on U.S. oil inventories, which are expected to show further reduction.

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

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