Investor Hope Sustained into New Week

August 15, 2016

Like last week, markets continue to interpret weak economic data in the positive light that central banks and fiscal authorities will respond with aggressive macroeconomic stimulus that keeps long term interest rates low and commodities and equities buoyant.

The major data report overnight was preliminary Japanese GDP in the second quarter, which rose in volume terms just 0.2% between 1Q and 2Q at an annualized rate (SAAR). Year-on-year real growth was 0.6% compared to 0.7% in the second quarter of 2015, -0.3% in 2Q14 and 1.1% in 2Q13. That growth averaging just 0.5% per annum over the last sixteen quarters. Nominal GDP expanded 0.9% at a seasonally adjusted annualized rate between 1Q and 2Q. The GDP price deflator increased 0.2% between 1Q and 2Q and by 0.8% over the past year, down from 1.8% in the prior year. Among components of real aggregate demand, exports tumbled 5.9% SAAR on quarter, business investment fell 1.5%, and personal consumption rose just 0.6%. Public-sector spending climbed 0.9% SAAR.

The dollar is unchanged against sterling but had edged down 0.3% against the Canadian and Australian monies, 0.2% versus the yen, and 0.1% relative to the euro, Swissie and kiwi.

West Texas Intermediate crude oil is 0.4% firmer at $44.67 per barrel. Gold and copper are 0.2% higher.

Ten-year German bund and British gilt yields edged up a basis point, and the 10-year Japanese JGB is two basis points less negative than last week’s closing level.

Stocks rose 2.4% in China and 1.2% in Hong Kong, and 1.1% in India but fell 1.1% in Indonesia and 0.3% in Japan. South Korea is observing National Liberation Day, commemorating its freedom from Japan after WW2. Stocks in Europe have risen 0.5% in Germany, 0.3% in the U.K., 0.2% in Italy and 0.1% in France and Spain.

Japanese industrial production rebounded 2.3% in June following a 2.6% drop in May, according to revised data. The increase initially was estimated at 1.9%. Capacity usage increased 1.5% on month but fell 2.4% on year. Capacity was unchanged on month and 0.6% lower on year.

New Zealand’s Performance of Services index (PMI) fell 2.2 points in July to a 20-month low of 54.2.

Indonesia’s trade surplus shrank considerably to $590 million in July on weak exports.

Retail sales growth slowed appreciably in Singapore in June, posting a 12-month increase of 0.9% after 3.2% in the year to May.

The Swiss producer price/import price index posted drops of 0.1% on month and 0.8% on year in July. Over the past 12 months, domestic PPI fell 0.5%, and import prices dropped 1.5%.

British house price inflation, according to the Rightmove index, slowed 0.4 percentage points to 4.1% in August.  As recently as April, such exceeded 7.0%.

Portuguese real GDP rose 0.2% on quarter and 0.8% on year in the second quarter.

In the year to July, Danish producer prices fell 0.7%, and Finnish consumer prices rose 0.5%.

Several U.S. economic indicators get released today: the Empire State manufacturing index, the National Association of Homebuilders housing market index, and Treasury-compiled capital flows with the rest of the world. Canadian existing home sales arrive as well.

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



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