Investors Remain Very Risk Averse and Driven by Politics, Not Data

May 18, 2017

Sovereign debt yields continue to fall. In futures, the 10-year Treasury yield of 2.19% is down four more basis points and shows a 22-basis point plunge since the May 10th close. Comparable German bund and British gilt yields fell six and 3 basis points thus far today. The Japanese JGB is unchanged after data showing strengthening growth in that economy.

Gold rose 0.5% to $1,264.40 per ounce. Other commodities are lower, including a 1.8% decline in WTI crude oil to $48.19 per barrel and a slide in copper of 2.2%.

Following Wednesday’s 1.8% plunge in the DJIA, share prices today lost 1.3% in Japan, 1.2% in India, 0.8% in Australia, New Zealand, and Hong Kong, and 0.5% in China. In Europe, equities have declined 1.8% in Italy, 1.7% in Spain, 1.4% in the U.K., 1.2% in France, 0.9% in Germany, 1.1% in Switzerland and 1.0% in Greece.

The dollar advanced 2.0% against the peso, 0.2% relative to the loonie, kiwi and yuan, and 0.1% vis-a-vis the euro but retreated further by 0.6% against sterling, 0.5% versus the yen, and 0.2% against the Swiss franc.

Japanese real GDP climbed at a 2.2% annualized rate last quarter, more than the growth seen in the United States or Euroland and up from 1.4% in 4Q16 and 1.0% last summer.  However, nominal GDP edged down 0.1% as a seasonally adjusted annualized rate as the GDP price deflator fell 0.6%. Between the first quarters of 2016 and 2017, real GDP rose 1.6%, but nominal GDP fell 0.8%.

Australian jobs advanced 37.4K last month following a 60K increase in March. The jobless rate dropped 0.2 percentage points to 5.7% on a seasonally adjusted basis. The data beat expectations.

Chinese property prices rose 0.7% monthly in April, fastest in six months and also exceeding expectations. The government had imposed new restrictions to cool the housing market. Property prices were 10.7% greater than a year earlier, the eighth double-digit on-year advance.

British retail sales volume rebounded 2.3% last month from a 1.4% drop in the prior month. Their 12-month rate of increase doubled to 4.0% and was at an even higher 4.5% excluding fuel.

Bank Indonesia policymakers left their key interest rates unchanged at this month’s review, including the 4.75% key seven day reverse repo. The decision was as expected.

Political news dominated the news overnight.

  • Former FBI Director and Bronze Star recipient from the Vietnam War Bob Mueller has been named special counsel to head the investigation into Russia’s influence of the 2016 election.
  • The Washington Post reports that House Majority Leader Kevin McCarthy way back on June 15, 1916 remarked to colleagues that he believed Trump was receiving money from Russian President Putin.
  • Britain’s Conservative Party, which leads opinion polls ahead of June 8 elections, published its election manifesto. Such adopts a tough approach for the coming Brexit negotiations including a vow not to pay an exorbitant fee for exiting the EU. The document opines that no deal is preferable to a bad deal, a view already espoused by Prime Minister May. Donald Tusk, EU Council President, meanwhile is urging unity among the remaining members as it determines the terms of Britain’s exit.
  • There’s a new political corruption scandal in Brazil.

South African wholesale turnover posted a smaller 3.8% on-year drop in March. Retail sales that month rose 0.3% on month and 0.8% on year.

Japanese stock and bond transactions generated a net JPY 1.327 trillion capital outflow last week, which was much larger than the JPY 336 billion yen outflow in the prior week of May 5.

French ILO-basis unemployment last quarter of 9.6% was 0.4 percentage points less than in 4Q16 and at a 5-year low.

Italian construction output rose 0.3% in March and recorded higher on-year growth as well of 3.0%.

Czech producer prices increased 0.3% in April and accelerated to a 3.2% 12-month rate of increase.

Turkish consumer sentiment improved to a 7-month high in May. It helps to have a friend in the White House.

In The Philippines, whose leader also enjoys a friendly camaraderie with the new U.S. federal administration, real GDP grew 1.1% on quarter and 6.4% on year in 1Q17. Both comparisons were lower than in the final quarter of 2016.

New Zealand consumer confidence recovered 1.8% last month.

India’s index of leading economic indicators fell back 0.5% in April after an outsized March improvement. The index of coincident economic indicators rose 1.9%.

Still to come: the U.S. index of leading economic indicators, the Philly Fed manufacturing index and weekly U.S. jobless insurance claims. St. Louis Fed President Bullard will speak publicly. He’s recently expressed some concern about the slowdown of growth at the start of this year.

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


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