Ton of Data Depresses Sovereign Debt Yields

August 1, 2017

Released U.S. economic indicators today were lower than forecast.

  • The Institute of Supply Management’s manufacturing purchasing managers index dropped 1.5 points to a 2-month low of 56.3, which still implies pretty solid activity.
  • Construction spending sank 1.3% in June.
  • The main disappointment was delivered by personal income and spending. Income stagnated instead of rising about 0.4% in June. That caused real consumption expenditures to also stagnate despite a downtick in the savings rate, their worst result since February. The PCE price deflator, the Fed’s favored measure of inflation, was unchanged on month and slipped to a 12-month increase of 1.4% from 1.5% in May, 1.7% in April, 1.8% in March and 2.2% in February. Core PCE inflation of 1.5% was well under the Fed’s goal.

The preliminary flash euro area GDP growth estimate for the second quarter shows an as-expected quarterly 0.6% pace, but on-year growth of 2.1% was smaller than assumed.

Trump Administration infighting is playing out like the French Revolution reign of terror only without the killing. So Scaramucci, who had ousted the previous chief of staff Priebus, in turn got purged by the new White House Chief of Staff John Kelly.

The dollar is mixed, posting rises of 0.8% against the Australian dollar, 0.3% versus the kiwi and 0.1% relative to the loonie and euro but falling 0.2% against the peso, yen and sterling and by 0.4% vis-a-vis the Swiss franc and 0.1% versus the yuan.

Ten-year sovereign debt yields fell three basis points in Germany, Italy and the Netherlands, 2 basis points in France and a basis point in the United States.

U.S. stocks are slightly firmer. In the Pacific Rim, share prices rose 0.8% in South Korea, 0.9% in Australian, 0.7% in New Zealand, 0.6% in Hong Kong and China, and 0.3% in Japan. Equities in Europe show gains so far of 1.0% in Germany and Greece, 0.8% in the U.K. and Spain and 0.7% in France. Switzerland is closed for a national holiday.

West Texas Intermediate crude oil fell 1.2%, falling back under $50 per barrel to $49.56. Gold was bid 0.4% higher to $1,278.60 per ounce.

A slew of other factory sector purchasing manager surveys from July were reported besides the aforementioned U.S. report released by the Institute of Supply Management.

  • Euroland’s manufacturing PMI printed at a 4-month low of 56.6, but like many of these reports also revealed slower inflation. Within the euro area, the PMI of The Netherlands (58.9) was at a 75-month high, and Greece’s 50.5 was at the same level as May’s 37-month high. The other individually reported national PMI scores ranged from Spain’s 54.0 to Austria’s 60.0, but each was lower than June’s reading.
  • Japan’s PMI, 52.1, was down from 52.4 in the prior month and at an 8-month low.
  • Australia’s PMI rose to a 3-month high of 56.0.
  • Vietnam, Thailand, and Malaysia posted 2-month lows of 51.7, 49.6 and 48.3. Readings below 50.0 signify a contraction of activity.
  • The Caixin Chinese manufacturing PMI dropped 0.3 to 50.1, also a 2-month low.
  • India’s PMI plunged 3 points to a 101-month low of 47.9.
  • South Korea’s PMI dropped 1.0 to a 4-month low of 49.1. Prices fell.
  • Indonesia’s PMI reading of 48.6 was the second straight sub-50 score and at a one-year low.
  • The Filipino PMI dropped 1.1 points to a 6-month low of 52.8.
  • Although down from a 43-month low of 54.7 registered in June, Turkey’s 53.6 PMI was the second best score in over three years.
  • The British PMI recovered 0.8 points to a 2-month high of 55.1, beating expectations and embodying strong jobs growth.
  • Sweden’s PMI fell back 1.9 points to 60.4.
  • Norway’s PMI increased 1.7 points to a 64-month high of 57.3.
  • In Eastern Europe, Russia’s 52.7 reading was at a half-year high, but Poland and Czech PMIs of 52.3 and 55.3 were at respective 8-month and 7-month lows.
  • The Brazilian and Mexican PMIs of 50.0 and 51.2 were at 4- and 2-month lows.
  • South Africa’s Absa PMI of 42.9 was down from 46.7 in June and 51.5 in May and the lowest score in 45 months.

The Reserve Bank of Australia’s Official Cash Rate was left unchanged as expected at 1.50%, but a comment from officials that Aussie dollar appreciation is dampening inflation sent the currency lower.

Britain’s Nationwide house price index rose 0.3% on month and 2.9% on year after 3.1% in June.

Japanese motor vehicle sales sank 1.1% in July from a year earlier.

Indonesian CPI inflation slowed a half percentage point to 3.88% in July. Core inflation of 3.05% hardly changed.

South Korean CPI inflation stayed level at 1.9% in July.

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

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