Markets Move on From G20 Summit With Firmer Dollar, Stocks, and Bonds

July 10, 2017

Nothing truly newsworthy came out of the G20 Summit in Hamburg. The G19 is going forward without the United States on implementing the Paris Accord on combating man-made climate change. A potential trade war over steel wasn’t averted, nor did a coordinated plan emerge to address the situations in Syria, North Korea and other hot spots.

Trump’s son, son-in-law and campaign manager met with a Russian woman last June claiming to have dirt on Hillary Clinton. There is confusion over whether anything useful was relayed and whether other contacts may have occurred.

Investors are focused on Janet Yellen’s congressional testimony this Wednesday and Thursday and on the upcoming stream of corporate second quarter earnings.

After Bank of Governor Kuroda doubled down on the pledge not to lessen its ultra loose policy, which includes a negative interest rate and bond purchases to hold 10-year JGB yields close to zero, the yen slipped as low as 114.32 per dollar overnight, its weakest level since 114.37 hit on May 11.

The dollar posted net overnight gains of 0.4% against the Swiss franc, 0.3% relative to the loonie, 0.2% vis-a-vis the yen and euro, and 0.1% against the New Zealand and Australian dollars. The greenback is unchanged relative to sterling and the yuan but has dropped 0.8% against the peso.

Share prices in the Pacific Rim rose 1.1% in India, 0.8% in Japan, 0.5% in Singapore and 0.4% in Australia but declined 0.8% in New Zealand and 0.7% in Indonesia. In Europe, stocks are up 0.7% in Switzerland, 0.6% in Italy, 0.4% in Germany and 0.2% in France but unchanged in Britain.

WTI oil fell back under $44 and at $43.73 per barrel is near recent lows. Comex gold dipped 0.2% and is near $1,200 at $1.207.60 per ounce.

Ten-year German bund and British gilt yields have settled back by four and three basis points, and their U.S. Treasury counterpart shows a lower yield, too, in futures trading.

Germany recorded a EUR 17.3 billion current account surplus in May, 16% wider than in April and just 0.6 billion euros smaller than in May 2016. As a percent of GDP, Germany has a larger relative current account surplus than even China. This week’s cover story in The Economist discusses “The German Problem” and “Why its surplus is damaging the world economy.” The seasonally adjusted trade surplus in April-May averaged EUR 20.0 billion per month, matching the monthly averages in the prior two quarters.

Japan’s current account data were also reported today. The JPY 1.654 trillion unadjusted and JPY 1.401 billion seasonally adjusted surpluses were smaller than expected, but robust on-year growth in exports of 12.9% and imports of 15.8% was greater than recorded in April.

In other Japanese news,

  • The aforementioned remarks by Governor Kuroda were made in the context of a press conference to unveil the latest branch managers survey of regional Japanese economic trends, which revealed the broadest economic strength since the report of April 2005. But note was also made that inflation expectations are not adjusting to the improved economic settings as readily as hoped.
  • Bankruptcies posted an on-year decline for the second month in the last three. A rise of 19.5% in May has been sandwiched by declines of 7.5% in June after 2.2% in April.
  • Stock and bond transactions in June generated a net 3.97 trillion yen capital outflow.
  • Core private domestic machinery orders, which had been expected to rise in May by almost 2%, instead fell 3.6%. That drop follows a 3.1% fall in April. Orders from the public sector and from abroad for machinery respectively dropped by 22.0% and 5.2% in May.
  • The economy watchers survey, a measure of perceptions observed by service sector workers like taxi drivers, rose 1.4 points to a 6-month high of 50.0 in June. Like this gauge of current conditions, the forward-looking separate outlook index went up 0.9 points to a 4-month high of 50.5.

The Bank of France’s manufacturing sentiment index dipped a point to 103 in June. It printed at 103 or 104 each month in the first half of 2017 but ended 2016 with a reading of 101. Central bank officials anticipate that GDP will have expanded 0.5% (not annualized) last quarter.

Investor sentiment toward Euroland according to the Sentix measure edged 0.1 point lower in July to a 2-month low of 28.3 but exceeded 20.0 for a fifth straight month.

The National Bank of Serbia’s policy interest rate, which has been at 4.0% since a pair a 25-basis point reductions in February and July of last year, was left unchanged. The Bank of Israel also will reveal the result of its latest policy review today.

Ireland’s construction purchasing managers index declined to a 4-month low of 58.2 in June following readings above 60.0 in each of the three prior months.

Norwegian CPI and PPI inflation eased to 1.9% and 3.2% last month. Greek and Danish consumer prices were 1.0% and 0.6% higher than in June 2016.

In the year to May, industrial production expanded by 4.2% in Finland and 3.5% in Turkey.

U.S. consumer credit data and the Fed’s monthly labor market conditions index will be reported later today.

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



Tags: , ,


Comments are closed.