Flight to Safety

June 6, 2017

Investment safety is taking precedent over investment return this morning.

  • Sovereign debt yields are considerably lower, including drops of five basis points in 10-year Treasury futures and British gilts. The 10-year German bund yields is down 3 bps, and its Japanese counterpart has dipped a basis point.
  • The yen climbed 1% against the dollar to 109.28, its strongest level since April 21.
  • Gold jumped 0.9% and, at $1,294.3, is bearing down on the $1,300 threshold for the first time since early November.
  • Equities fell 1.5% in Australia, 1.0% in Japan, 0.7% in Indonesia and 0.4% in India. Stocks in Europe have lost 0.9% in Switzerland, 0.7% in Greece and Germany, 0.6% in France and 0.5% in Spain. The British Ftse, off just 0.1%, is proving relatively resilient.
  • In addition to the aforementioned dollar slide against the yen, the greenback has lost 0.5% versus the kiwi and 0.1% vis-a-vis the yuan, which moved through the 6.8000 level. The dollar is steady, on the other hand, versus the euro, Aussie dollar, loonie and sterling.
  • Industrial metal prices and WTI oil ($47.26 per barrel) are softer in today’s risk averse trading mood.

In leaving Australia’s Official Cash Rate at a record low of 1.5%,  the Reserve Bank of Australia Board flagged a slowdown of growth last quarter. The government releases GDP figures tomorrow. The OCR has been at 1.5% since a pair of cuts last year in May and August, each of which was by 25 basis points.

Australia’s current account deficit narrowed to A$3.108 billion last quarter from A$3.511 in 4Q16, A$10.201 billion last third quarter, and A$15.943 billion in 2Q16.

South Africa’s first recession since 2009 is official. Real GDP fell 0.7% last quarter after easing 0.3% in the final quarter of 2016. On-year growth remained positive but just 1.0%.

Today is the 73rd anniversary of the D-Day landing of allied troops on the coast of France, which marked the beginning of the end of the European theater of World War II. For world financial markets, Thursday shapes up to being a day of reckoning of a different nature: a British parliamentary election, an ECB policy meeting, and former FBI Director Comey’s congressional testimony. All three events carry great uncertainty with huge consequences potentially at stake.

Other released data today showed the following:

The Sentix measure of investor confidence toward the euro area climbed a full point to 28.4 in June. At the end of 2016, it was at 10.0.

Euroland retail sales volume edged up only 0.1% in April, leaving its 12-month rate of increase unchanged at 2.5%. Sales fell monthly in both Germany and France but rose in Spain and Belgium.

Euroland’s retail purchasing managers index settled back to a 2-month low of 52.0 in May from 52.7 in April. The index had been below the 50 breakeven level between expansion and contraction in both February and March. Italy’s retail PMI remained particularly weak at 45.5 in May.

Germany’s construction PMI rebounded 0.7 points to 55.3 in May. Only a 13-month high of 56.4 in March showed faster expansion than in May going all the way back to March 2016.

Ireland’s services PMI fell 1.6 points to a 5-month low in May, but the 59.5 reading that month still reflects brisk activity growth.

The global PMI readings in May reached a 4-month high in services and a 2-month high on a composite index that embodies both manufacturing and service-sector activity.

British same-store sales in May were 0.4% lower than a year earlier, marking their third on-year drop in four months.

Construction output in New Zealand fell 3.5% last quarter, led by a 7.2% plunge in non-residential construction.

In the year to April, retail sales in eastern Europe rose 6.1% in Romania, 4.8% in the Czech Republic and 2.0% in Hungary.

U.S. data today include the Labor Department’s JOLTS index, the IBD/TIPP optimism index and weekly Redbook chain store sales.

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

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