Oil and Stocks Firmer

July 26, 2017

The Federal Open Market Committee completes its two-day policy review and will announce its findings and plans at 14:00 EDT (18:00 GMT). See preview.

Second-quarter corporate earnings have been mostly better than expected and have provided a supportive foundation for equities.

10-year sovereign debt yields are down three basis points in the U.K., 2 bps in U.S. Treasury futures, and one basis point in Germany, France, Italy, and Spain. The 10-year Japanese JGB is steady at 0.07%.

The dollar is unchanged against the euro, yuan and loonie, up 0.6% relative to the Swiss franc and 0.3% versus the Australian dollar, but down 0.2% vis-a-vis the peso, kiwi and sterling. The greenback edged 0.1% lower against the yen.

West Texas Intermediate oil at $48.35 per barrel is at its strongest level thus far in July. ¬†Industrial metal prices have firmed, but gold’s downtrend was extended 0.5% overnight.

Equities in Europe have climbed 0.7% in Switzerland, 0.5% in the U.K. and France, and 0.3% in Germany and Spain. Japan’s Nikkei closed 0.5% higher. Stocks in India and Hong Kong also rose 0.5%, and those in Australia went up 0.9%.

The Aussie dollar was depressed by lower-than-expected CPI inflation data that dampened speculation that monetary policy might start to normalize anytime soon. The CPI rose just 0.2% on quarter in 2Q17, half as much as forecast, and posted of lower sub-2% on-year increase of 1.9%. Core inflation was at 1.8% last quarter.

Japanese corporate service prices posted a 12-month increase of 0.8% in June, the fifth straight month with such a result.

Small business sentiment in Japan unexpectedly improved 0.8 points to 50.0, a 4-month high, in July.

Bank of Japan Board member Nakaso observed that firms are still reluctant to raise prices.

British real GDP expanded 0.3% last quarter after increases of 0.2% in the previous two quarter, but the on-year pace of growth slowed to 1.7% from 2.0% recorded in the first quarter of this year. Growth in the second quarter was paced by service sector activity, as both manufacturing and construction contracted.

The British Bankers Association estimates there were 40,200 mortgage approvals last month, 0.2% less than in May.

U.S. mortgage applications climbed 0.4% last week, as the 30-year fixed mortgage rate slipped 5 basis points to 4.17%.

The UBS Swiss consumption indicator rose 0.06 points to a 3-month high of 1.38 in June but was lower than the initial estimate for May. The Swiss ZEW expectations index, a gauge of investor confidence, recovered to a score of 34.7 in July after dropping to 20.7 in June from 30.8 in May.

French consumer confidence retreated four point to 104 in July from 108 in June, 102 in May and 100 in April.

Italian consumer confidence ticked 0.3 points higher to a 3-month high of 106.7 in July. Overall business sentiment printed at 105.5 versus after 106.3, but sentiment in construction and manufacturing strengthened in the latest month.

Sweden experienced a wider SEK 4.2 billion trade surplus in June. The first-half surplus was SEK 3.4 billion compared to SEK 1.1 billion a year earlier.

New Zealand’s trade surplus widened to NZD 242 million in June from NZD 74 million in May and NZD 107 million a year earlier.

Industrial output in Singapore leaped 9.7% on month and 13.1% on year in June.

New U.S. home sales data will be reported today, but the main events are the FOMC statement, Don Trump Jr’s testimony before Congress, and the Senate debate on health care legislation, which seemingly has nine lives.

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

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