Better European Data, More Leaked Allegations on Trump, and a Terrorist Bomb Attack

May 23, 2017

The German business climate index compiled by the IFO Economic Institute increased 1.6 points in May to the highest level since German unification, a reading of 114.6. Current conditions went up 1.9 points, and expectations climbed 1.3 points in the latest month, prompting IFO officials to call the business mood euphoric and the pace of economic activity very brisk. Manufacturing experiences the most improvement. Retail slipped a bit.

German real GDP advanced 0.6% between 4Q16 and 1Q17, led by net exports and business investment. Benefiting from a mild winter and fewer holiday closures than a year before, GDP was 2.9% higher than in the first quarter of 2016. Adjusted for variations in the number of working days, on-year growth of 1.7% was similar to outcomes in the prior three quarters.

Preliminary purchasing manager survey results for Euroland, Germany and France suggest that second-quarter GDP growth may reach 0.6-0.7%.

  • Euroland’s composite PMI reading (services and manufacturing) held steady at 56.8, indicating the fastest rate of growth in six years. Growth was well balanced, with readings of 57.0 for manufacturing and 56.2 for services.
  • Germany’s composite PMI increased 0.6 ponts to a 73-month high of 57.3. Manufacturing rose 0.8 point to a score of 59.4, while services settled back 0.2 points to a 2-month low of 55.2.
  • The French composite PMI climbed 1.0 point to a 72-month high of 57.6, led by improved momentum in service-producing industries.

Euroland’s index of leading economic indicators advanced 0.7% in March.

The French statistical agency, INSEE, reported that business sentiment in manufacturing held steady in May at April’s 109 level, best since June 2011. Business sentiment in wholesale, construction and retail improved, too.

The Washington Post is citing government sources that President Trump back in March had asked the heads of the National Security Agency and the National Intelligence to assert that no evidence can be found linking his election campaign to Russian influence on the election’s outcome.

Markets overnight did not react sensitively to a bomb attack at a concert in Manchester, England, killing at least 22 people and wounding as many as 59 others. ISIS claimed responsibility.

The dollar is 0.2% higher against the euro and sterling but down 0.7% against the kiwi, 0.4% relative to the Australian dollar, 0.3% versus the loonie and peso, and 0.1% against the yen. The Brazilian real fell 0.4%. The latest development in that country’s political crisis is a report that Standard and Poor’s may slice its credit rating on Brazil as a result.

OPEC ministers meet in Vienna Thursday to discuss production cuts. Oil, which in recent days had risen above $51, slipped 0.3% to $50.98 per barrel. Comex gold is off 0.2% at $1,259.40 per ounce.

The 10-year JGB yield is steady at 0.03%.  The 10-year British gilt eased two basis points overnight, while its German counterpart went up a basis point.

Share prices in the Pacific Rim fell 0.5% in China, 0.4% in New Zealand, 0.7% in India and 0.3% in Japan and Indonesia. Equities in Europe have firmed 1.2% in Spain, 0.8% in France, 0.5% in Italy, 0.6% in Germany and even 0.2% in Great Britain.

Released Japanese data today featured a 0.6% drop in the all industry index that left such unchanged on balance in the first quarter as a whole and merely 0.8% higher than in the first quarter of 2016. Also, Japan’s manufacturing purchasing managers index fell back 0.7 points in May to a 6-month low of 52.0. Growth in orders, jobs and production were all also at 6-month lows.

On a brighter note, however, Japanese supermarket sales and department store sales recorded on-year increases of 0.6% and 0.7% in April, and the on-year growth of machine tool orders accelerated to 34.7% in April from 22.8% in March and 9.1% in February.

The British CBI distributive trades index slumped even more sharply than feared in May, printing 36 points lower at +2, which is a four-month low.

The Swiss trade surplus contracted 35% on month to CHF 1.97 billion in April as exports declined 2.5% while imports rose 2.6%.

Sweden’s jobless rate remained at 6.6% last month. Icelandic wage costs were 4.9% higher than in April 2016.

Inflation in Hong Kong accelerated to 2.0% overall as well as in the core CPI in April. Singapore’s CPI inflation, in contrast, decelerated to just 0.4%.

Australia’s index of leading economic indicators improved 0.5% in March.

U.S. new home sales and the Richmond Fed manufacturing index are due later today.

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

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