Stocks Fall and Dollar Rally Pauses

August 25, 2016

Today’s shocker came from the German IFO Institute’s monthly business climate index, which dived 2.1 points in August to a 6-month low of 106.2. Current conditions (down 2.0 points to a 7-month low) and business expectations (off 2.0 points to a 6-month trough) shared equally in this considerably weaker than expected outcome. Several data reports had revealed resilience in the aftermath of Brexit.  This highly trusted indicator, on the other hand, suggests that Europe’s largest economy hit a big speed bump following the British referendum. The retail and wholesale sectors suffered the greatest. Manufacturing slowed but not as sharply. And construction retained its prior high.

The IFO report hurt European share prices, which are down 1.1% in Germany, 1.0% in Italy and France, 0.9% in Switzerland, 0.6% in Greece and 0.4% in the U.K.. In the Pacific Rim, which was affected by mounting uneasiness ahead of Janet Yellen’s Jackson Hole speech tomorrow, stocks dropped 0.6% in China, 0.8% in India, and 0.4% in Japan and Australia.

The dollar eased 0.2% against the Swiss franc and 0.1% relative to the yen and Aussie currency. The Greenback is unchanged against the loonie, kiwi and yuan and up 0.3% versus sterling and 0.2% vis-a-vis the euro.

Comex gold and WTI oil are each off 0.2% at $1,227.0 per ounce and $46.68 per barrel.

Among 10-year sovereign debt yields, the British gilt is unchanged, the Japanese JGB has slipped two basis points, and the German bund is a basis point firmer.

Japanese corporate service price inflation doubled to 0.4% in July, a 13-month high. Stock and bond transactions between Japan and other economies generated a JPY 577 billion net capital outflow last week, somewhat less than the 860 billion yen outflow of the prior week.

Between the second quarters of 2015 and 2016, Swiss industrial production, sales and orders fell by 1.2%, 2.3% and 5.6%.

Britain’s CBI reported the results of its monthly distributive trade survey, which surprisingly recovered 23 points to a reading of +9 in August, a 6-month high, from -14 in July.

German real construction orders in the first half of 2016 were 16% greater than a year earlier.

Spanish real GDP growth in 2Q16 was revised up to an on-quarter 0.8% advance from 0.7% reported initially, while the year-on-year pace was unrevised at 3.2% compared to 3.1% in the prior quarter.

In the year to July, Spanish and Swedish producer prices fell by 4.6% and 1.1%.  South African producer prices rose 7.4%, in contrast.

French business sentiment settled back to a reading of 101 in August after rising to 102 in July from 100 in June. The manufacturing sentiment index dropped two points to a 14-month low of 101, while services and construction indices remained unchanged.

Swedish economic sentiment, which had been forecast to rise, instead fell 2.3 points to 100.0 in August. Manufacturing and services each saw sentiment deteriorate. Sweden’s jobless rate fell to an 8-month low in unadjusted terms in July of 6.3% but stayed at 6.9% on a seasonally adjusted basis.

Danish retail sales fell 0.6% on month and 2.0% on year in July. Finnish retail sales dropped 1.5% on year that month.

The Filipino trade deficit of $2.1 billion in June was 3.5 times wider than in the corresponding month a year before. Hong Kong’s trade deficit of HKD 33.3 billion in July was 17% bigger than in July 2015. Many economies in Asia have been hampered by China’s slowdown.

The Jackson Hole central banking symposium opens today. Janet Yellen will deliver an important address on Friday.  Scheduled U.S. data releases today include durable goods orders, weekly jobless insurance claims and the K.C. Fed manufacturing index.

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

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