Some Fresh Surprises

May 10, 2017

Trump’s firing of FBI Director Comey in the middle of the investigation into Russia’s efforts to influence the 2016 U.S. election has given an upward yank to suspicion that the Trump campaign may have played a complicit role. The firing also served to remind investors that Trump is an uncertainty-seeker.

Comments from the Dallas and Boston Fed presidents stressed the negative. While Dallas Fed President Kaplan favors further interest rate hikes, he underscored the need for a gradual and data-based approach. He does not anticipate a spike in inflation and wants no more than 3 increases during calendar 2017. Boston Fed President Rosengren is worried that if unemployment keeps falling, inflation may surprise on the upside, and he also is concerned that Trump plans to loosen the government’s influence over Fannie and Freddie Mac could unsettle the U.S. commercial real estate market.

Relations between Britain and the EU have been more confrontational than hoped. EU officials are meeting in Brussels today to map out plans for a Brexit negotiating strategy.

Overnight movements in the dollar against the euro, Swissy, yen, loonie, yuan and sterling were negligible. But the dollar fell 0.8% and 0.6% against the New Zealand and Australian currencies.

South Korea’s election of Moon Jae-in yesterday was followed by a 1.0% decline in that country’s stock market. Moon favors greater appeasement of North Korea, which shows no inclination to pause its progress toward a fully operational nuclear weapons capability.

For a fifth consecutive week, U.S. oil inventories fell last week. In response, WTI crude rose 1.2% overnight to $46.44 per barrel. Gold climbed 0.7% meanwhile to $1,224.30 per ounce.

Singapore markets were closed today for Vesak Day, which honors the life of Buddah.

In other Pacific Rim stock markets, equities fell 0.9% in China and 0.8% in Indonesia but rose 1.1% in India, 0.7% in Hong Kong, 0.6% in Australia and 0.3% in Japan. In Europe, share prices are down 0.6% in Spain, 0.5% in Switzerland, 0.2% in France and 0.3% in Italy, and 0.1% in Germany.

The downward move in European stocks is not entirely due to political strains in the region. It also seems that the ECB may be approaching a turning point between a bias toward ease and a bias to lessening accommodation. ECB President Draghi delivers a speech today that may shed light on the timing of such a switch.

Ten-year German bund and British gilt yields are three basis points lower. So is the 10-year Treasury yield, and S&P futures imply lower share prices at the U.S. open. The 10-year Japanese JGB yield is steady.

Japan’s index of leading economic indicators rose 0.8 points to a 21-month high in March. The index of coincident indicators slid to a 2-month low but maintained an “improving trend” according to officials. Japanese international reserves, which are dominated by foreign exchange holdings, climbed $11.965 billion in April to $1.242 trillion. Reserves are worth $25.4 billion more than their end-2016 level.

A summary of the BOJ Board meeting in late April — akin to preliminary minutes — maintained that downside external risks require keeping the ultra-loose policy stance in spite of a somewhat brighter economic outlook, which has been better since 2008.

Chinese CPI inflation rose 0.3 percentage points in April to a 3-month high of 1.2%, but PPI inflation fell 1.2 percentage points to a 4-month low of 6.4%.

French industrial production rose 2.0% on month in March but only 0.4% in Italy, yet Italy’s 12-month rate of increase (2.8%) was easily greater than the 0.4% rise in France. The French current account deficit remained sizable at EUR 3.0 billion in March, and a trade deficit in the first quarter of EUR 19.9 billion was the second largest quarterly shortfall ever.

In the year to April, consumer prices rose 2.2% in Norway and Hungary, 1.6% in Greece, 1.1% in Denmark, and 2.0% in the Czech Republic.

The Westpac-MI gauge of Australian consumer confidence fell 0.7% in April to a 3-month low.

U.S. mortgage applications increased 2.4% last week, as the 30-year fixed mortgage rate held steady at 4.23%.

U.S. import prices and the April federal budget figures arrive today. On Wednesday, several central banks will release monetary policy statements, including the Bank of England and central banks in The Philippines, Peru, and Malaysia.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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