U.S. Jobs Day, G-20 Summit Begins, and BOJ Policy Becomes More Differentiated

July 7, 2017

Investors await the monthly U.S. Labor Dept jobs data due at 12:30 GMT. In the meantime, industrial production figures were released for Germany, France, Great Britain, Spain, Denmark, and the Czech Republic. Other data releases of interest have been Japanese and Chinese reserves, Japan’s index of leading economic indicators, the French current account, and British trade.

Group of Twenty leaders are meeting in Hamburg, Germany amid strains of all sorts. Street protests have been very disruptive. The U.S. has been squabbling with other countries, especially China and Germany, over trade and climate change. Coming off a speech in Poland that played down the importance of traditional values of democracy and extolled the challenge of a clash between religion-defined civilizations, Trump is tweeting away. And then there is the matter of how to respond to North Korea.

With the Fed and ECB tilting more and more away from monetary stimulus, the Bank of Japan is resisting the upward pull on the JGB yield from the rise in other global long-term rates. The 10-year JGB yield dipped a basis point, and the yen fell to an eight-week low.

The dollar climbed overnight by 0.6% against sterling, 0.4% relative to the yen, 0.2% vis-a-vis the Swiss franc and 0.1% versus the euro and loonie. The dollar dropped 0.4% against the peso and drifted off 0.1% versus the Aussie dollar. The yuan and kiwi are unchanged.

Share prices continue to be rattled by rising long-term interest rates. Stocks fell 1.0% in Australia, 0.7% in Taiwan, 0.6% in Hong Kong and Indonesia, and 0.3% in Japan and South Korea. In Europe, equities are down 0.5% in Italy, 0.4% in Spain, 0.3% in France and Switzerland, and 0.3% in Germany and Greece.

West Texas Intermediate crude oil slumped 3.1% to $44.12 per barrel. Comex gold is 0.2% softer at $1,221 per ounce.

Ten-year Italian, French and German sovereign debt yields ground upward by another 3, 2, and 1 basis points.

German industrial production jumped 1.2% in May on top of a 0.7% gain in April. This greater-than-expected performance left output in May 5.0% higher than a year earlier and the average in April-May 1.9% above the 1Q mean.

French industrial production rebounded from a 0.6% April decline with a 1.9% upsurge in May, three times greater than analyst forecasts.

Danish industrial output in May rose 2.0% on month and 5.4% on year, while Czech production and retail sales respectively increased 3.3% and 1.2% that month. Spanish output increased 1.2% in May, the biggest month-on-month advance since last November.

In contrast, British industrial production dipped 0.1%, defying expectations of a larger increase than April’s of 0.2%. Italian retail sales were also soft, dropping 0.1% in May after a 0.4% slide in April. The on-year rise in Italian sales was just 1.0%.

Japan’s index of leading economic indicators rose 0.5 points to a 2-month high of 104.7. Although the index of coincident economic indicators was lower in May than April, officials retained the view that its trend continues to improve.

Chinese international reserves advanced $3.2 billion to $3.057 trillion in June. Japanese reserves fell by $2.0 billion after increasing over $20 billion in the previous two months. Deflationary pressure in Japan continues as attested by a mere 0.1% monthly rise in real average cash earnings in May.

British data keeps accumulating that point to weakening demand. The Halifax index of British house prices fell 1.0% on month in June and decelerated to an on-year 2.6% rise in 2Q from 3.8% in 1Q and 6.5% in the final quarter of 2016. The British merchandise trade deficit swelled to GBP 11.86 billion in May, and construction output that month fell 1.2% from April and 0.3% on year.

Romanian real GDP rose 1.7% in the first quarter, the largest quarterly advance in a year and a half.

Attention now shifts to U.S. and Canadian jobs data releases due shortly.

Next week, Fed Chair Janet Yellen delivers her semi-annual Humphrey-Hawkins testimony to Congress.

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

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