Surprise, Surprise, Surprise!

July 14, 2016

Surprise #1: Latest U.S. presidential opinion polls show the race between Trump and Clinton too close to call in key swing states, despite much greater political ad spending by the Democrats.  Trump said he will unveil his VP choice Friday at 11:00 am EDT.

Surprise #2:  Rising from the ashes, Boris Johnson was named British Foreign Secretary by Prime Minister Theresa May, who also Amber Rudd to succeed her as Home Secretary and Philip Hammond to be Chancellor of the Exchequer.  Johnson was the spiritual leader of the successful Leave campaign.  Hammond is not planning an emergency budget.

Surprise #3:  Japanese Prime Minister Abe is reportedly considering the authorization of direct government funding for fiscal stimulus, i.e. a flood of helicopter money to goose Japan’s economy.  The yen in response fell 1.4% further against the dollar overnight.

Surprise #4:  Philly Federal Reserve President Harker indicated that he favors two interest rate hikes in the second half of this year.

Surprise #5:  The Bank of England did not cut the 0.5% Bank Rate today as had been widely anticipated.  While doing so today was rejected by an 8-1 vote of the Monetary Policy Committee with Vlieghe dissenting, a released statement pre-announced that a loosening of the policy stance in August is probable.  However, officials want to see the quarterly staff Inflation Report due next month before deciding exactly what action to take.

Surprise #6:  A 4.1% monthly leap in the energy component of the U.S. June producer price index lifted the overall PPI by 0.5% last month (more than twice market expectations), and that swung the 12-month change back into the black at +0.3% versus -0.1% recorded in the year to May.  Core inflation ticked up 0.1 percentage point to 1.3%.

Surprise #7:  New home prices in Canada leaped 0.7% on month in May, the most since July 2007.  On-year home price inflation accelerated to 2.7% from 2.1%.  The Bank of Canada yesterday announced no change in its overnight interest rate target of 0.5%.

Surprise #8:  A recent rally in global share prices and commodity prices had been premised on the expectations of looser monetary policies starting today with an incorrectly presumed Bank of England rate cut.  Nonetheless, European share prices extended their rally to a 3-week high.  In “what we worry” fashion, today’s stock market gains amount to 1.5% in Germany, 1.4% in France, 1.6% in Italy, 1.1% in Spain, 0.9% in Greece, 0.5% in the U.K. and 0.4% in Switzerland.  In the Pacific Rim, Japan’s Nikkei closed 0.9% higher, and Hong Kong’s Hang Seng index climbed 1.0%.  With an increase exceeding 100 points in the first half hour of trading, the DOW Jones Industrials climbed further into record-high territory.

Aside from its aforementioned appreciation against the yen and a 1.2% advance against the kiwi, the dollar fell 1.3% against sterling, 0.5% versus the Swiss franc and loonie, 0.2% relative to the euro, 0.3% vis-a-vis the Aussie dollar, and 0.1% against the yuan.

The 10-year Treasury yield of 1.55% is up 7 basis points on the day and 23 bps above its 52-week low.  10-year British gilt and German bund yields are up by 8 and 6 basis points, and the 10-year Japanese JGB shows an uptick of 2 bps.

West Texas Intermediate oil rebounded 2.3% to $45.76 per barrel from Wednesday’s 2-month low.  Industrial metal prices continues their resurgence, but gold sank 1.6% to $1,322.20 per ounce.

In other news,

Australia’s jobless rate climbed to 5.8% in June from 5.7% in the prior three months.  Jobs advanced 7.9K, which was less than in any of the three prior months but only because of a 30.6K decline in part-time workers.  The labor participation rate also ticked up a tenth of a percentage point to 64.9%.

New motor vehicle sales in Australia advanced 3.1% in June and were 2.1% greater than a year earlier.

New Zealand’s manufacturing purchasing managers index rose 0.5 point sin June and, at a healthy reading of 57.7, was the highest in more than seven months.  Consumer confidence in New Zealand improved for the third time in 4 months during July.

Japanese stock and bond transactions generated a large JPN 3.05 trillion net capital outflow in the first week of the third calendar quarter of 2016.

Indian WPI inflation accelerated more than expected to 1.6% in June from 0.8% in May, lifted by both the food and energy components.

Switzerland’s PPI/import price index ticked 0.1% higher in June, resulting in a somewhat smaller on-year decline of 1.0%.  Import prices went up 0.8% on month.

The Bank of Korea, which had engineered an unexpected 25-basis point interest rate cut in June, left its policy rate unchanged at 1.25% after this month’s review.

Real GDP growth in Singapore accelerated last quarter accelerated, with gains of 0.8% from 1Q16 and 2.2% compared to a year earlier.

In the year to May, South African wholesale prices increased 3.4%, but Greek import prices fell 6.7%.  Finnish CPI inflation accelerated 0.1 percentage point (ppt) to 0.4% in June, and Irish inflation rose 0.4 ppts to 0.4% as well.

New U.S. jobless insurance claims remained unchanged at 254K last week, resulting in a 259K four-week average, which was 10K less than in the previous four-week period.

Peru’s central bank is holding a monetary policy meeting today.  A slew of Chinese data including 2Q GDP get released on Friday.

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

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