Sub-$40 Oil Spreads Gloom to Other Markets

August 3, 2016

WTI oil got a little bounce after yesterday’s drop but remains below the critical $40 level at $39.85 per barrel.

Rippling damage from the U.K. Brexit vote in June was evident in the U.K. services purchasing managers survey, which slumped to an 88-month low of 47.4 in July from 52.3 in June and 53.5 in May. The manufacturing PMI was at a 41-month low, and the construction PMI in British sank to a 85-month low in July. The composite PMI was 47.5.

Markets remain unimpressed by the latest fiscal and monetary efforts to promote Japanese growth and fight inflation.  The Nikkei fell 1.9% today and is barely above 16K.  Elsewhere around the Pacific Rim, stocks fell 1.7% in Hong Kong, 1.2% in South Korea, 1.4% in Australia, 1.0% in India and Singapore, 0.9% in New Zealand, and 0.7% in Taiwan. Equities in Europe are down by 0.9% in Greece, 0.7% in France and Italy, 0.5% in Spain, 0.4% in Switzerland, and 0.2% in the U.K. and Germany.

Ten-year sovereign debt yields fell two basis points in the U.K. and U.S. and a single basis point in Japan and Germany.

Comex gold is 0.3% softer at $1,368.90 per ounce.

The dollar strengthened 0.7% against the kiwi, 0.4% versus the Swissie, 0.3% relative to the euro, 0.2% vis-a-vis the yen and Aussie dollar, and 0.1% against sterling.  The dollar lost 0.3% against the yuan and 0.1% versus the loonie.

The Bank of Thailand left its main interest rate unchanged.  It’s been at 1.50% since a cut sixteen months ago.  The vote was unanimous, and a statement mentioned a number of growth risks and suggested it may take longer for inflation to rise back to target.

Euroland’s services PMI rose 0.2 points to a 2-month high of 52.9. A six-month high in the composite PMI of 53.2 suggests GDP at the start of the summer quarter was surprisingly resilient at around 0.3% in the month after the Brexit vote.  Growth in the euro area was strongest in Germany, where the composite PMI (55.3) was at a 7-month peak and the services PMI rebounded off a 13-month low in June of 53.7 to 54.4.  But France is stagnating with a composite PMI of 50.1 and a services PMI in July of 50.5.  Spain’s composite PMI sank to a 32-month low of 53.7, and its service PMI was at a 5-month low of 54.1. Italy’s services PMI in July of 52.0 beat street expectations, and the composite Italian PMI was 52.2. Ezone PMIs generally indicated muted inflationary pressure.

In other PMI news,

  • Russian readings of 53.0 in services and 53.5 overall each constituted a 41-month high.
  • Australia’s Performance of Services index jumped 2.6 points to an 11-month high of 53.9.
  • The Swedish services purchasing managers index, 57.8, was 4.4 points higher in July than June and at a 6-month peak.
  • China’s composite PMI climbed to a 22-month high of 51.9 despite a 2-month low on its services PMI of 51.7.
  • Although Japan’s services PMI climbed above the 50 no change line to 50.4, business sentiment plumbed to a 49-month low, and jobs fell at their fastest pace in nine months. A composite PMI reading in Japan of 50.1 shows an economy moving sideways.
  • The Hong Kong and Singapore private purchasing manager indices in July, respectively at 47.2 and 50.7, were above June levels but below May readings.
  • Lebanon’s private PMI despite climbing to a 5-month high remained very depressed at 45.5, implying a significant rate of deterioration persisting.
  • The Egyptian and U.A.E. non-oil PMI readings of 48.9 and 55.3 each constituted 10-month highs.  The Saudi non-oil PMI score of 56.0 in July was at an 8-month high.
  • India’s service-sector and composite purchasing manager indices of 51.9 and 52.4 in July were the best readings since April and associated with diminishing inflationary pressure.

British shop prices were 1.2% lower than a year earlier in July.

U.S. motor vehicle sales in July of 17.77 million at an annual rate surpassed expectations.  U.S. mortgage applications last week fell 3.5% after plunging 11.2% in the previous week.  ADP’s estimated rise in U.S. private sector jobs in July, 179K, slightly exceeds street estimates and the June figure.

Retail sales in the eurozone were unchanged in June and matched the 1.6% 12-month increase recorded in May. Sales in the second quarter exceeded the first-quarter level by just 0.1%, an annualized 0.5% quarterly advance.

Turkish consumer price inflation accelerated to 8.8% in July, most since January. Producer price inflation of 4.0% also exceeded June’s pace.

New Zealand wage inflation of 1.5% remained low in the second quarter.  Jobs rose 0.3% on quarter and 3.1% on year.

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

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