Sterling Sinks Below $1.3000 to Monthly Low

August 9, 2016

Sovereign debt prices rose. So did stocks, oil, the yen and dollar.  Gold and industrial metal prices fell.

There are holidays today in Singapore and South Africa. Today is the ninth anniversary of the onset of the U.S. subprime mortgage crisis and the 42nd anniversary of the resignation of former President Nixon.

The dollar dipped 0.2% against the yen and Aussie dollar and 0.1% versus the kiwi.  The U.S. currency advanced 0.8% against the loonie and 0.5% relative to sterling, which fell below $1.3000 for the first time in four weeks. The pound was depressed by a more forceful Bank of England easing than expected, speculation of more monetary stimulus after hints from one Bank of England policymakers, and worries that the EU will take a very hard line in negotiating the terms of Brexit.

The dollar is unchanged against the euro, yuan and Swiss franc.

Share prices advanced 0.7% in Japan and China, 0.6% in in South Korea, 0.3% in Australia and 0.2% in New Zealand and Hong Kong. In Europe, equities have risen 0.8% in Germany, 0.6% in France, 0.5% in Italy, 0.3% in Spain and the U.K., and 0.2% in Switzerland.

The ten-year British gilt yield touched a record low of 0.59% overnight but is currently a shade higher. The Japanese 10-year JGB is down two basis points, and a lower Treasury yield is indicated in futures trading.

WTI crude oil advanced another 0.5% to $43.23 per barrel.  Gold edged down 0.2% to $1,338.90 per ounce.

Reflecting lower costs for food, Chinese CPI inflation fell for a third straight time to 1.8% in July from 1.9% in June, 2.0% in May and 2.3% in April. But the 12-month rate of decline in producer prices declined to 1.7% from 2.6% in June and 5.9% at the start of 2016.

Japanese M2 money grew 3.3% on year in July, down from 3.5% in June and matching the average on-year increase in the first half of 2016. A 19.6% on-year decline in machine tool orders in July was the smallest 12-month decrease since January’s drop of 17.2%.

In the last Reserve Bank of India policy meeting presided over by Governor Rajan, key interest rates and the reserve requirement were not changed. There is concern that higher public sector wage increases could lift expected inflation, preventing a drop of inflation, now at 5.8%, to the 5% target by next March.  Rajan’s 3-year term has ended, and he chose not to accept another.

British industrial production ticked up 0.1% in June and was 1.6% greater than a year earlier. Production advanced 2.1% in 2Q after dipping 0.2% in 1Q, but those results were before the Brexit surprise. Factory output slipped 0.3% on month and rose only 0.9% on year in June.

The U.K. goods and services trade deficit unexpectedly widened to GBP 5.084 billion in June and was even wider in 2Q at GBP 12.472 billion than the GBP 12.032 billion deficit in 1Q. Merchandise trade accrued a GBP 68.687 billion in the first half of 2016 versus GBP 126.331 billion in all of 2015. To keep sterling from sinking still further, Britain needs to attract foreign capital to fund its huge trade imbalance, and that’s going to be harder post Brexit.

British same-store retail sales increased 1.1% on year in July following no net change in May-June.

Germany recorded a EUR 26.3 billion current account surplus in June versus EUR 18.4 billion the month before and EUR 25.3 billion in June 2015. The surplus was 18% bigger in the first half of 2016 than a year earlier. The seasonally adjusted trade surplus in 2Q of EUR 22.6 billion per month was a slightly greater pace than in 1Q or the second quarter of 2015.

The National Australia Bank reported July declines in both its business conditions and business confidence indices. Conditions fell to a 5-month low.

In the year to July, consumer prices rose 0.5% in the Czech Republic but fell 0.4% in Cyprus and 0.3% in Hungary.

Denmark’s current account surplus widened to DKK 12.4 billion in June from DKK 8.5 billion in May.

U.S. small business sentiment according to the NFIB measure edged up 0.1 point to a 7-month high of 94.6 in July.

U.S. data still to come: the IBD/TIPP optimism index and quarterly productivity and unit labor cost growth.

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

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