Persistent Worries about Global Growth

September 9, 2016

Markets had rallied earlier this week as perceived odds for a U.S. interest rate increase were trimmed because of softer-than-expected U.S. data.

Now, markets are nervous again.  The Fed may be proceeding very gradually with rate normalization, but at the same time other central bankerss like those at the ECB and BOJ are having mounting reservations about negative interest rates and appear reluctant to augment stimulus. The bottom line is that poor global growth prospects are trumping relief about continuing accommodative Fed policy.

Oil fell back 1.4% to $46.96 per barrel in spite of earlier news of the biggest weekly U.S. inventory drop since the start of 1999. That data was attributed to weather.

The dollar advanced 0.5% against the Australian dollar, 0.3% relative to the kiwi, and 0.2% versus the yuan, yen, and loonie, but the greenback fell 0.2% against the euro and 0.1% against sterling. The Swissie is steady, and gold has settled back 0.3% to $1,338 per ounce.

Equities in the Pacific Basin fell 1.7% in Indonesia, 1.3% in South Korea, 1.1% in Taiwan, 1.1% in New Zealand, 0.9% in Australia, 0.7% in Singapore, 0.6% in China but just 0.1% in Japan. European stocks are lower, too, with drops thus far of 0.4% in Germany and France, 0.3% in the U.K. and Italy, 0.2% in Spain and 0.1% in Greece and Switzerland.

North Korea tested another nuclear weapon.

The view has become more widespread that the multiyear rally in bonds is over. 10-year yields rose eight basis points in the U.K., four bps in Germany, and two bps in Japan. Futures point to a higher Treasury yield.

The Bank of Korea had cut its repo rate by 25 basis points in June, but officials there left policy unchanged after a third subsequent monthly review.

Japan’s tertiary index, which measures service sector activity, rose 0.3% in July, but its 12-month rate of increase fell to a mere 0.1% from 0.5% recorded in the year to June. Over five successive quarters, the tertiary index rose 0.2% in 2Q15 and 0.1% in 3Q15, then dipped 0.1% in the final quarter of 2015 before rising 0.3% and 0.2% in the first two quarters of 2016.

On-year growth in Japanese M2 money growth slowed to 3.3% in August from 3.4% in July and 3.5% in June. Broad liquidity grew 1.7% in August, down from 12-month increases of 1.9% in July and 2.1% in June.

Chinese consumer price inflation dropped a half percentage point to 1.3% in August, lowest since October 2015. The deceleration was caused by a two percentage point slowdown in food prices. PPI deflation, on the other hand, was halved to 0.8%. Producer prices had fallen 1.7% in the year to July and 2.6% in the year to June.

The British goods and services trade deficit narrowed to GBP 4.502 in July from GBP 5.573 billion the month before and GBP 4.722 in July 2015. Still, the deficit was larger than street forecasts.  Stronger growth in exports than imports trimmed the merchandise trade deficit to GBP 11.764 billion from GBP 12.92 in June, but it was larger than the year-earlier imbalance of GBP 11.337 billion.

British construction output beat expectations of a July decline, instead remaining unchanged from June’s level and posting an on-year decline of just 1.5%.

The German current account surplus of EUR 18.6 billion in July was considerably narrower than surpluses of EUR 26.3 billion in June and EUR 25.4 billion in July 2015. The seasonally adjusted trade surplus narrowed to EUR 19.4 billion from a monthly average of EUR 22.3 billion in the second quarter.

French industrial production in July proved more disappointing than expected, dropping 0.6% on month and 0.1% on year.

Spanish industrial output rose only 0.2% in July and by 0.3% from a year earlier when the data are adjusted for variations in the number of working days. Finnish industrial production rose 1.3% on month and 6.6% on year in July.

On-year Turkish GDP growth slowed to 3.1% in 2Q, a five-quarter low, from 4.7% in the first quarter. Net exports exerted the main drag. Turkey’s July current account deficit of $2.6 billion was only about half the size of the June imbalance.

In the year to August, Greek consumer prices fell 0.9%, while Norwegian consumer prices rose 4.0%. Norway’s PPI dropped 4.7%. Czech consumer prices increased 0.6% over the past twelve months.

The Swiss seasonally adjusted jobless rate ticked up to 3.4% in August from 3.3% in July.

Australian mortgage loans fell 4.2% in July, almost three times as much as forecast.

Canadian monthly labor statistics will be released shortly later today.

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

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