Stocks Up in Europe after Drop in Asia… Dollar and Sterling Off, Too

August 3, 2017

The dollar fell 0.5% against the yen, 0.2% relative to the euro and Swiss franc and 0.1% versus the kiwi and yuan.

Sterling’s even more weak, dropping 0.6% against the dollar as Bank of England Governor Carney returned to a theme that Brexit will hit the economy for a long time to come.

Share prices in Europe have risen 0.9% in Italy and the U.K., 0.6% in France, 0.3% in Switzerland and 0.2% in Spain. Amid evidence that Germany has cooled a bit, the Dax is down 0.1%.

Equities in Asia fell 1.7% in South Korea, 0.8% in Indonesia, 0.5% in Hong Kong and Taiwan and 0.3% in Japan.

Ten-year sovereign debt yields fell 8 basis points in Britain, 3 bps in the U.S. and 2 bps in Germany.

WTI oil has firmed 0.5% to $49.84 per barrel. Comex gold slipped 0.3% to $1,275 per ounce.

Retail sales in the euro area advanced 0.5% in June after a 0.4% increase the month before, lifting the 12-month increase from 2.4% in May to 3.1% in June.

U.S. factory orders jumped 3.0% in June after small drops in both April and May. Orders in the first half of 2017 exceeded the year-earlier average by 5.6%. Evidence of U.S. labor market tightness was evidenced in new jobless insurance claims, which fell 5K last week to just 240K and posted a 4-week mean of 241.75K.

But the U.S. non-manufacturing purchasing managers index dropped 3.5% to 53.9 in July.

The Bank of England left monetary policy settings after a review that coincided with a new quarterly Inflation Report that cut projected growth but also the potential British growth rate consistent with the 2% inflation target. Above-target inflation will be allowed throughout the forecast horizon, but the 0.25% Bank Rate would have to be lifted if growth surpasses expectations. Carney’s press conference accentuated coming economic difficulties related to Brexit and weak productivity. The vote to keep the 0.25% interest rate unchanged was 6-2 compared to 5-3 at the prior meeting in July, and investors concluded that officials are less inclined to raise rates soon that seemed the case a month ago.

The Czech National Bank lifted the 2-week repo rate by 20 basis points to 0.25%, which was the first increase since February 2008 and the first rise by any European central bank in several years. The Lombard rate was doubled to 0.5%.

Central bank meetings in Ukraine and Sri Lanka left monetary policies unchanged. Ukraine’s key interest rate stays at 12.5%. Sri Lanka also has elevated rates of 7.25% on deposits and 8.75% on loans.

Euroland’s services and composite purchasing manager indices in July of 55.4 and 55.7 each represent six-month lows but imply fairly robust activity nonetheless to start the third quarter. Germany’s readings of 53.1 on services and 54.7 overall were the weakest in Euroland for the first time in a dozen years, representing 10-month lows.

Britain’s services PMI rose 0.4 points to a 2-month high of 53.8. Any figure above 50.0 indicates expansion.

India’s composite PMI of 46.0 was sharply lower in July than June’s reading and implies the greatest pace of contraction since March 2009.

The Russian composite and service-sector PMIs of 53.4 and 52.6 represent the slowest expansion rates in ten and fourteen months.

Japan’s services PMI fell 1.3 points to a 5-month low of 52.0, while the composite PMI in Japan of 51.8 was 1.1 points below June’s reading.

China’s composite PMI rose 0.8 points to a 4-month high of 51.9. The services PMI, however, was a tad lower and at a 3-month trough of 51.5.

Among mid-eastern non-oil PMI results, Egypt’s reading for July was still below 50 at 48.6 but at its highest point in a year. The Saudi and U.A.E. PMIs were at 3-month highs of 55.7 and 56.2, and Lebanon’s 46.3 score was at a 2-month high.

Standard Bank reported a 2-month high of 50.1 in South Africa’s private purchasing managers index.

Hong Kong’s private PMI of 51.3 was the best result in nearly 3-1/2 years.

Brazil posted sub-50 composite and service-sector PMIs of 49.4 and 48.8, but each was above the June results.

Australia’s trade surplus shrunk 58% on month to A$ 856 million in June and totaled A$ 2.8 billion in the second quarter of 2017.

Turkish CPI inflation moved back into high single digits in July, dropping to 9.8% from 10.9% in June. Producer prices were 15.5% higher than in July 2016.

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


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