Markets Just Can’t Get Beyond Trump Administration Uncertainty and Contradictions

July 12, 2017

As the tenth anniversary of the start of the financial crisis nears to less than two months, the conventional wisdom is that a normalization of monetary policies will be kicking into a faster gear. The Fed leads in this process but is not the only monetary authority involved. In fact, the Bank of Japan has been the only major central bank not to send signals that it may soon move in a less accommodative direction. Related to this theme,

  • Fed Chair Janet Yellen’s first day of Humphrey Hawkins testimony starting at 10:00 EDT today has been highly awaited.
  • And at the same hour, the Bank of Canada seems poised to hike its interest rate and will be releasing an updated Monetary Policy Report.
  • Investors also are looking forward to viewing several bank quarterly earnings reports. Banks would benefit from more normalized interest rates.

This theme for now has been hijacked by the latest revelations in the investigation into Russian efforts to influence the 2016 election, what the Trump presidential campaign knew about such, whether it used such knowledge to gain advantage against Hillary Clinton, and whether and when and by whom laws may have been broken in that effort. Words like impeachment and treason won’t go away, and the controversy continues to prevent enactment of the new administration’s fiscal agenda. This in turn could affect how rapidly the Fed tightens monetary policy.

Another uncertainty concerns coming changes in the Fed Board of Governors. Yellen’s term as chair ends in January; Trump hasn’t said if he’ll keep her on or nominate a different person. Yellen’s predecessor, Bernanke, was reappointed to a second term late in August 2009, five months before his first term was to expire.

The dollar fell overnight by 0.3% against the peso and yen, 0.2% versus the yuan and Australian dollar, and 0.1% relative to the kiwi, Swiss franc, and sterling. The dollar is unchanged against the loonie and 0.1% firmer vis-a-vis the euro.

Lower-than-assumed U.S. weekly oil inventories reported yesterday have boosted West Texas Intermediate crude oil by 1.6% to $45.77 per barrel. Comex gold is 0.2% firmer. Industrial metal prices moved higher, too.

Share prices in the Pacific Rim fell 1.0% in Australia, 0.6% in New Zealand, 0.5% in Japan and 0.2% in China and South Korea, but such rose 0.8% in Hong Kong and Indonesia.

Equities have advanced in Europe by 1.1% in Italy, 0.9% in the U.K. and France, 0.7% in Germany and Switzerland, and 0.6% in Spain.

Industrial production in the euro area rose more sharply than projected in May, climbing 1.3% on month and 4.0% on year. Germany, France, Spain and The Netherlands all had industrial production posting a rise of 1.0% or more.

China released June monetary data showing CNY 1.54 trillion of new loans, which was most since January. M2 money posted a 12-month 9.4% rise, and M1 went up 15.0%.

British labor market statistics were better than forecast, too. Both the claimant count jobless rate of 2.3% in June and ILO-basis unemployment of 4.5% in March-May were lower than in the prior report. The on-year increase in regular pay accelerated to 2.0% from 1.8%.

German wholesale price inflation slowed to 2.5% in June from 3.1% in May, 4.7% in March and April, and a recent peak of 5.0% in February.

Japan’s monthly tertiary index, which had jumped 1.4% in April after falling in each of the first three months of 2017, reverted to a 0.1% dip in May. The index was 1.9% higher than in May 2016, however.

Japanese domestic corporate goods prices recorded a second month with no month-on-month change. That kept the June level 2.1% higher than a year earlier. In the 12 months to June, export prices climbed 5.6%, and import prices soared 11.9%.

South Korea’s index of leading economic indicators bounced back 0.5% in May, but the index of coincident economic indicators for May was 0.1% lower.

Portuguese CPI inflation slowed from 1.5% in May to 0.9% in June. Czech consumer prices were 2.3% higher than a year earlier.

In the year to May, industrial production advanced 15.3% in Romania, 6.2% in Hungary, and 4.6% in Malaysia. On-year growth in retail sales in Singapore of 0.9% in May was accompanied by an unexpected 1.0% monthly decline.

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

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