Stocks, Bonds, and Dollar Moving South

August 2, 2016

Japan’s Nikkei dropped 1.7%.  Share prices in Europe, led by banks, have so far today declined 3.4% in Greece, 2.4% in Spain, 2.1% in Italy, 1.4% in France, 1.3% in Germany, 0.8% in Switzerland and 0.3% in Great Britain. Equities fell 0.8% in Australia and opened lower in the United States.

WTI oil bounced 0.9% but remains very depressed at $40.41 per barrel, having fallen over 20% from June’s high.

Sovereign debt prices are lower.  10-year bond yields rose by 11 basis points in the U.K., eight bps in Germany, six bps in Japan and 4 bps in the United States.

The dollar has fallen today by 1.2% against the Aussie dollar, 1.1% versus the yen and kiwi, 0.8% relative to sterling, 0.7% vis-a-vis the loonie, 0.4% against the euro and Swiss franc and 0.2% versus the yuan.  Comex gold advanced by a further 0.8% to $1,369.90 per ounce.

Investors are giving a double-whammy boo-how to released details of the planned Japanese fiscal stimulus, which bears a close resemblance to the many failed packages from the 1990s that had a big total figure for a headline but in fact delivered only a fraction of such in true new spending.  In this case, the total figure is Y28.1 trillion of which just over a quarter represents real government deficit spending.

The Reserve Bank of Australia’s Official Cash Rate (OCR) has been cut to a record low of 1.5% from 1.75%.  This second reduction of 2016 follows a previous 25-basis point cut done in May. In October 2011, the OCR was 4.75%.

A considerably larger-than-forecast A$ 3.195 billion Australian trade deficit was experienced in June, and officials also released data on building permits, which fell 2.9% on month and 5.9% on year in June.

Japan’s monetary base recorded on-year growth of 24.7% in July, down from 25.4% in June, 25.9% in the second quarter, 28.8% in the first quarter, 34.0% in 2015, and 43.2% in 2014. The monetary base is what the Bank of Japan controls directly. Monetary officials since April 2013 have targeted a fixed yen amount by which the base is to expand each year. Over time, that fixed amount decelerates in percentage growth terms.

Consumer confidence in Japan slipped back to a two-month low of 41.3 in July from 41.8 in June. 41.3 also matches the average reading in the first half of 2016. A reading of 50 divides optimism from pessimism.

Standard Bank’s South African purchasing managers index improved to 49.9 in July from 49.6 the month before. Such was a 2-month high but the sixth sub-50 score in the last seven months.

The Irish manufacturing purchasing managers index (PMI) slumped 2.8 points in July to 50.2, a 38-month low on Brexit concerns.

The British construction PMI edged down 0.1 points to 45.9 in July.  Although higher than forecast, such constitutes an 85-month low.

Mexico’s manufacturing PMI fell to a 33-month low of 50.6 in July from 51.1 in June and 53.6 in May.

The Swiss manufacturing PMI, whose release was delayed a day because of the National Day holiday on August 1, dropped to a six-month low of 50.1 in July from 51.6 in June and 55.8 in May. More volatile world markets are subjecting the franc to greater safe-haven demand.

Swiss retail sales volume slipped 0.5% on month and posted a larger 3.3% 12-month rate of decline in June.

U.S. motor vehicle sales last month slightly surpassed expectations.

U.S. personal spending grew 0.4% in June, slightly faster than forecast, but a 0.2% rise in personal income was no better than in May and a shade under expectations.  The personal expenditure price deflator posted unchanged on-year advances in June of 0.9% overall and 1.6% on core items.

The New York regional PMI, known as the NAPM index, recovered to a reading in July of 60.7 following scores of 45.4 in June, 37.2 in May and 57.0 in April. July’s reading is the best since 62.0 last December and compares to a first-quarter average of 54.1.

Producer prices in the eurozone climbed 0.7% in June, the largest on-month increase so far in 2016.  This trimmed the 12-month rate of decline to 3.1% from 3.8% in May.  The energy component leaped 2.4% in June, while all other producer prices collectively rose 0.2% on month and fell 1.0% on year.

South Korean consumer price inflation fell to 1.6% in July from 2.0% in June. Retail sales volume in Hong Kong plunged 9.6% between mid-2015 and mid-2016.

Romanian producer prices dropped 2.3% on year in June.

Home price inflation in New Zealand accelerated to a sizzling 14.1% in July, but expected consumer price inflation over the medium term remains low.

Dallas Federal Reserve President Kaplan, speaking overnight in Beijing, expressed his preference for a gradual and patient pace of interest rate normalization.  He’s concerned about spillover effects from adverse external economic developments.

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


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