Soft Tone in Sterling, Sovereign Debt Yields, Oil and Stocks

May 26, 2017

Sterling fell 0.7% against the dollar overnight in response to a new poll showing just a 5-point spread between Prime Minister May’s Conservatives and the Labor Party; the spread earlier had been over 20 points. Britain’s parliamentary election is scheduled for June 8.

Sterling declined more sharply against several other currencies, as the dollar is down by 0.7% against the yen, 0.4% versus the loonie and peso, 0.3% relative to the Swiss franc and kiwi, 0.2% vis-a-vis the yuan and 0.1% against the euro.

Ten-year sovereign debt yields dropped 3 basis points in Germany, two basis points in the U.K. and a basis point in Japan. The U.S. 10-year Treasury is 2 bps lower in futures trading.

Share prices have fallen 0.7% in Australia, 0.5% in Japan and Singapore, and 0.1% in Taiwan. The Italian and Spanish stock markets have so far lost 0.9% each, and the French and German bourses are down by 0.6% and 0.4%, respectively.

Yesterday’s Opec meeting in Vienna failed to shed enough clarity on future production discipline among producer to lift WTI oil back above $50 per barrel. It’s trading close to $49 instead.

Comex gold is well-bid at 1269.20 per ounce, an overnight gain of 0.8%.

President Trump’s nine-day trip abroad had been unremarkable for the most part, securing an arms for terrorism fighting deal in Saudi Arabia and getting through meetings with the Pope, the Israeli prime minister, and the head of the Palestinians that lacked the usual melodrama that Americans have come to endure. But Trump was Trump at yesterday’s Nato summit, and tensions seem likely at the G7 summit in Sicily today and tomorrow. The U.S. President managed to send negative vibes toward Germany and Montenegro and is still considering the option of abandoning the Paris accord on climate change.

Investors await some key U.S. data later today, covering GDP, durable goods orders, and consumer sentiment.

Saint Louis Fed President Bullard in Tokyo expressed alarm about persistently lower-than-desired U.S. inflation over the past five years. While saying the experience was not as dire as the deflation that Japan fell into during the 1990s, he clearly sees greater risk in inflation remaining too low rather than in becoming too high.

Two sets of Japanese prices figures were reported:

  • Core Japanese consumer prices in April were flat seasonally adjusted compared to the prior month but edged up 0.1 percentage point to 0.3% on year.  A 0.8% monthly rise in energy was the main factor. Core Tokyo CPI in May moved 0.1% higher both on month and on year.
  • Corporate service prices fell 0.2% in April, their first monthly drop since January, and this depressed the 12-month rate of increase by 0.1 percentage point to 0.7%, which was the first such decline since November.

Taiwanese GDP advanced more slowly in the first quarter of 2017 than the final quarter of 2016, rising 2.6% from the same quarter a year earlier.

Italian consumer confidence fell 2.0 points to 105.4 in May, the lowest reading thus far in 2017. Overall business sentiment in Italy slipped 0.6 points to a 2-month low of 106.2.

South Korean consumer confidence leaped 6.8 points to print at 108.0 in May. Singapore industrial production edged 0.1% higher in April after surging 5.7% in March. The 12-month rate of increase subsided less than expected to 6.0% from 11.0%.

Leaders of the G7 (U.S., Japan, Germany, France, Italy, Canada, Great Britain, and a representative of the EU) begin their annual summit today in Taormina, Sicily. The tradition of annual meetings of Group of Seven leaders dates back to November 1975 in Rambouillet, France and was intended initially for the purpose of coordinating foreign exchange policy in the early days of floating rates.

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

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