Markets React to U.K. July PMI Figures but Hardly to Trump’s Speech

July 22, 2016

Britain’s composite purchasing managers index swung from 52.4 in June to an 87-month low of 47.7 in July.  Service sector activity (49.1) contracted at the fastest pace in 41 months, while services did even worse, falling at the most rapid rate in 88 months with a reading of 47.4.  Sterling’s post-Brexit slump sent input prices soaring, and today’s data, the most definitive evidence to date of the referendum’s immediate negative impact, depressed the pound by a further 1.0% overnight.

Donald Trump’s acceptance speech was quintessential Trump-fare, a litany of American domestic and foreign policy disasters in his opinion, all of which he intends to fix very quickly.  His recipe for domestic tranquility will entail the best intelligence on earth, suggesting the kind of secret police found in China, North Korea and Russia.  Markets did not react.

One of the best news items of the day was delivered by Markit Economics’ preliminary U.S. manufacturing PMI, which rose 1.6 points to a 9-month high of 52.9 in July.

Eurozone PMI scores were also better than expected, indicating a smaller spillover negative hit from the Brexit vote.

  • The composite PMI fell to an 18-month low of 52.9 but was just 0.2 points lower than June’s reading. Manufacturing (51.9) was at only a 2-month low, but services, though down just 0.1 point, fell to an 18-month low of 52.7.  The data suggest GDP growth of about 1.5%, not weak enough to make more stimulus inevitable.
  • The French composite PMI rose 0.4 points to 50.0, beating expectations for a steepening rate of contraction.
  • The German composite PMI improved 0.9 points of 55.3, a 7-month high.  Input price inflation was at a 14-month peak.

Japan’s preliminary purchasing managers index increased 0.9 points to 49.0, a 5-month high.

Japanese stock and bond transactions last week generated a net JPY 1.612 trillion capital outflow.  Such followed a net inflow the previous week of JPY 3.25 trillion.

Aside from a 1.0% advance against sterling, the dollar has traded up 0.4% against the Aussie dollar, 0.3% versus the loonie, 0.2% vis-a-vis the yen, and 0.1% versus the kiwi and euro.  The greenback is steady against the yuan and Swiss franc.

The Japanese Nikkei fell 1.1%, and equities elsewhere in the Pacific Rim lost 0.9% in China, 0.5% in Taiwan, 0.4% in Hong Kong and Indonesia, and 0.3% in Australia.  In contrast, stocks rose 0.3% in New Zealand and India.  In Europe, the British Ftse, helped by new sterling slippage, advanced 0.4%.  Other movements there are marginal.

Comex gold and WTI oil are down 0.6% and 0.4%, respectively, at $1,323.70 per ounce and $44.57 per barrel.

The ten-year Treasury yield is up 3 basis points, while the DJIA is essentially flat.  The 10-year German bund firmed a basis point, and its British counterpart slipped a basis point.  The 10-year JGB is unchanged at -0.23%.

The eurozone fiscal deficit-to-GDP ratio narrowed to 1.6% in the first quarter of 2016 from 2.3% of GDP in the final quarter of last year and 2.2% a year earlier.  Euroland government debt in the first quarter of 2016 equaled 91.7% of GDP, up from 90.7% in 4Q15 but lower than 93.0% in the first quarter of 2015.  In Italy, Greece, Portugal, Cyprus and Spain, fiscal debt exceeded 100.0% in the latest quarter.  Topping the leader board was Greece at 176.8%.

Canadian retail sales dipped 0.2% in May due to weak auto sales but posted a 3.6% 12-month increase.  Canadian consumer prices rose 0.2% on month in June, keeping on-year inflation steady at 1.5%.  Core inflation remained at 2.1%.

In the year to May, Italian industrial orders declined 4.2%, industrial turnover fell 2.7%, and retail sales droppoed 1.3%.

In the year to June, Icelandic consumer prices increased 1.1%, the PPI plunged 9.3%, and Icelandic wages advanced by 12.5%.  Irish producer prices fell 1.3% between mid-2015 and mid-2016, and on-year Danish retail sales growth stayed at 1.8% in June.

India’s index of leading economic indicators took a 0.1% step backward in June after only rising 0.2% the month before.

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

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