People and U.S. Data Making News

July 21, 2016

At the Republican National Convention in Cleveland, Texas Senator Ted Cruz shocked the crowd by not endorsing Donald Trump for president and was booed for his disloyalty.  Indiana Governor Mike Pence gave a more effective VP nomination speech than had been expected, but the broad picture is one of tensions within the GOP.  Donald Trump speaks tonight.

The ECB left monetary policy unchanged.  The refinancing, marginal lending and deposit rates stay at zero percent, +0.25% and -0.40%, and monthly asset purchases totaling EUR 80 billion will be continued through March 2017 or beyond if needed and in any case until officials see a sustained adjustment in the path of inflation consistent with its inflation aim.  President Mario Draghi said it’s too early to assess with precision the impact of Brexit, noted that financial markets had initially handled the jolt of new uncertainty well, and overall concluded that more time and information is needed before any new policy moves.  Moderate growth is projected to continue, and inflation is expected to begin rising late this year on energy base effects.  Any effect from the failed Turkish coup was played down.  Draghi’s remarks, which seem to at least imply no fresh action until September at the earliest, lifted bond yields further.

Bank of Japan Governor Kuroda dismissed the notion of direct central bank funding of government spending, i.e. helicopter money, but analysts noted that the remarks were given in an interview some time ago, so there was little market reaction.

Released U.S. data showed

  • A 1K dip in new jobless insurance claims to a very low 253K.  The 4-week average of 257-3/4K is down from 267K over the four prior months to June 18.
  • A 67-month high of existing home sales at 5.57 million in June, 1.1% greater than in May and 3.0% higher than at mid-2015.
  • The Chicago Fed manufacturing index recovered 0.72 points to +0.16 in June, a 5-month high.
  • The FHFA house price index increased 0.2% in May and was 5.6% greater than a year earlier.
  • The Philly Fed manufacturing index in July relapsed to a reading of minus 2.9, the ninth sub-zero score in 11 months, from +4.7 in June.
  • The index of leading economic indicators and index of leading coincident indicators each rose 0.3% in June. Both results were better than those in May.

In market activity,

The dollar fell 0.5% against the yen, 0.2% versus the Australian dollar and 0.1% vis-a-vis the loonie, but it has risen overnight by 0.6% relative to the kiwi, 0.2% against the Swissie, and 0.1% versus the euro and sterling.  The yuan is unchanged.

Ten-year sovereign debt yield are three basis points firmer in the United States, Canada, and Great Britain.  German bund and Japanese JGB 10-year yields are up a basis point.

Gold, which had weakened previously, rebounded 0.2% to $1,321.70 per troy ounce.  West Texas Intermediate crude oil slipped 0.3% to $45.60 per barrel.

In stock markets around the Pacific Rim, Japan’s Nikkei closed 0.8% higher, and there were also gains of 0.7% in Hong Kong, 0.6% in New Zealand, 0.5% in Taiwan and 0.4% in China and Australia.  But there were losses of 0.7% in India, 0.5% in Indonesia, and 0.2% in Singapore and South Korea.  Equities have fallen 0.4% in Greece, 0.3% in France and the U.K., and 0.1% in Switzerland but show rises of 0.6% in Italy, 0.3% in Spain and 0.1% in Germany.

Among other developments,

Japan’s all industry index reversed a 0.8% rise in April with a 1.0% drop in May, leaving the April-May average just 0.3% above the 1Q mean and May’s level 0.5% greater than a year before.  Japanese supermarket sales were 0.5% softer than a year earlier in June, and the revised 12-month estimate in machine tool orders that month was unchanged at a decline of 19.9%.

British retail sales volume fell 0.9% on month in June but rose 1.6% on year in 2Q.  On-year retail sales growth amounted to 4.3% in June and 4.9% in 2Q.  The data were collected too early to reflect Brexit.  Britain’s net public sector borrowing of GBP 7.3 billion in June was less than in May, but the public sector net cash requirement grew to GBP 14.9 billion.

Bank Indonesia kept its reference interest rate and 7-day repo rates unchanged at 6.5% and 5.25%.  Monetary policy is transitioning from a focus on the former so-called BI rate to the one-week repo.  The BI rate had previously been sliced by 25 basis points each in January, February, March and June.  More reductions are expected, but caution is needed so as not to subject the rupiah to renewed downward pressure.  Inflation is back in target.

Canadian wholesale turnover rose 1.8% on month in May and 3.6% on year.

Euroland’s consumer sentiment index of -7.9 in July was more deeply negative according to the preliminary estimate.

Swiss M3 money growth accelerated to 2.5% in June, but the CHF 3.55 billion trade surplus was a little narrower than May’s surplus.

The National Australia Bank reported a 2-point rise in the business confidence index in June and a 2-point rise in business conditions.  Business confidence was cut in half, however, to +2 from +4 in both 4Q15 and 1Q16.

South Africa is also holding a monetary policy review today.

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


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