Rising Investor Caution

June 21, 2017

With a low of $43.33 per barrel, West Texas Intermediate oil has fallen 20.4% from its February 23 closing high of $54.45.

The sliding energy sector weighed especially had on Australian equities, which fell 1.6% today. Stocks also dropped 0.9% in Singapore, 0.8% in New Zealand, and 0.5% in Japan and South Korea. And in European trading so far, equities have lost 0.8% in France, 0.9% in Greece, 0.6% in Switzerland, Spain and Germany and 0.5% in Great Britain.

The dollar relinquished most of Tuesday’s rise against sterling, dropping 0.5% against the currency and is also down 0.3% relative to the kiwi, and 0.1% versus the yen, euro and Swiss franc. The dollar is unchanged against the peso and yuan and has risen 0.2% against the loonie and Aussie dollar.

Gold firmed 0.3% to $1,247.40 per ounce.

Ten-year British gilt and Japanese JGB yields are up by two and one basis points, while their German counterpart slid a basis point.

Remarks by Fed officials in recent days have underscored an intent to disregard softer price and growth data while moving forward resolutely with policy normalization through a rising interest rate and reductions to its balance sheet that are likely to commence in the second half of this year.

The Fed stance contrasts with thinking at the Bank of Japan. Minutes released today from the BOJ Board meeting of April 26-27 seem meant to squelch speculation that officials there will pull back from their ultra-stimulative stance anytime soon. While the BOJ has been observed lately to be buying JGBs in less quantity than the target of 80 trillion yen per year and in spite of the BOJ’s upward assessment of economic prospects, risk to growth is still perceived to the downside and the minutes strongly defend current policy settings. A speech today by Governor Kuroda also defended the status quo.

Japan’s all-industry index shot up 2.1% in April, most in a year. This monthly supply-side proxy for GDP had dipped 0.1% in the first quarter, but April saw construction leap by 7.3%, industrial production go up 4.0%, and service sector activity rise 1.2% on month. The all-industry index, which posted small back-to-back increases of 0.5% in 2015 and 2016, was 1.9% higher in April than a year earlier.

In other Japanese economic news, supermarket sales in May were 1.8% below the year-earlier level, but machine tool orders that month posted a 24.5% on-year advance.

Dutch consumer confidence in June was unchanged from May’s reading. Belgian consumer sentiment fell 2 points to a 4-month low. Swedish consumer confidence also declined, but the overall economic tendency index in Sweden rose 0.4 points to a higher-than-forecast 112.1 score in June.

The French government projects 2017 economic growth of 1.6% but core inflation this year of only 0.8%.

Swiss on-year M3 money growth accelerated to 4.1% in May from 3.2% in April.

British monthly public sector borrowing data in May were close to market expectations. Debt that month equaled 86.5% of GDP.

Consumer prices in the year to May rose 3.9% in Malaysia and 5.4% in South Africa.

Uber CEO Kalanick has resigned. U.S. existing home sales data will be reported later today, and several Fed officials are scheduled to speak publicly.

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

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