Risk Off Investor Mood

August 10, 2017

Gold has inched closer to $1,300 per ounce, climbing 1.0% overnight to $1,292.60 per ounce.

The dollar fell another 0.6% against the yen, touching an 8-week low against that currency. The dollar also dropped 0.4% relative to the yuan but booked marginal gains versus the euro, Swissy, loonie, and Aussie dollars. A bigger advance was registered vis-a-vis  the New Zealand dollar where a central bank statement expressed concern that the currency has drifted higher and reiterated the view that depreciation is preferred. See review.

Investors continued moving funds out of stocks and into safer fixed income securities. Ten-year sovereign debt yields are down four basis points in the U.S., 3 bps in the U.K. and 2 bps in Germany. The 10-year Japanese JGB is flat at a mere 0.05%.

Stock markets, on the other hand, dropped 1.3% in Taiwan, 1.1% in Hong Kong, 0.8% in India, 0.4% in China but merely 0.1% in Japan. In Europe, market drops so far amount to 1.4% in the U.K., 0.9% in Spain and Germany, 0.5% in Switzerland, 0.4% in France and 0.3% in Italy. The U.S. market is off more than 0.5%.

West Texas Intermediate crude oil got a lift of 0.4% to $49.77 per barrel following Wednesday’s inventory data of the week which showed a lessening excess.

The most immediate concern for investors is continuing saber-rattling between the United States and North Korea and worries that current political leaders in both countries will view massive mutual destruction as unacceptable as did their predecessors.

In addition, remarks today by New York Fed President Dudley, a mainstream representative from the FOMC, that reiterated the prediction that inflation will be rising were juxtaposed against yet more price data that came in below expectations. Producer prices dipped 0.1% in July, reversing June’s rise and pushing the 12-month increase down to 1.9% from 2.0% in June, 2.1% in May and 2.5% in April. Core inflation is at 1.8%, down from 2.2% two months earlier. The Fed wants to keep taking accommodation out of its stance and wants investors to assume it will stay this course. Officials also may be motivated by the frothy stock market highs reached recently.

Another dismay is that not even enduring unhealthy air quality conditions in the U.S. Pacific Northwest is having any impact on the thinking that led the United States to withdraw from the Paris Accord that has united the rest of the world in acknowledging climate change and taking steps to slow its progression.

Central banks in New Zealand, the Philippines, and Serbia held policy reviews today and left their key interest rates unchanged respectively at 1.75%, 3.0%, and 4.0%. Still to come: announcements from the central banks of Mexico and Peru.

Core private domestic machinery orders in Japan dropped 1.9% in June and 4.7% last quarter but are projected to rebound 7% in the present quarter. Public sector orders for machinery shot up 50.1% in June, while foreign orders slipped 3.1%.

Japan’s tertiary index of service sector activity was unchanged in June after a 0.1% dip in May but still managed to rise 1.1% from 1Q to 2Q and by 1.2% compared to the second quarter of 2016. Japanese domestic private corporate goods price inflation accelerated to 2.6% in July from 2.2% in June. Import prices were 11.9% higher than a year earlier on yen weakness.

British industrial production rebounded 0.5% in June on a rise in oil and gas extraction but was still only 0.3% higher than a year earlier. Factory output, moreover, was unchanged in June and 0.6% lower in the second quarter than in the first quarter. Construction dipped 0.1%, its second monthly slide in a row. Britain’s GBP 12.772 billion merchandise trade deficit in June was the largest goods deficit in ten months. The total goods and services deficit rose from GBP 2.516 billion in May to GBP 4.564 billion in June. According to NIESR data, U.K. GDP grew more slowly in July than June.

French industrial production sank 1.1% in June, reversing about two-third’s of May’s advance, and posted a smaller 2.6% on-year increase.

Swedish industrial production rose 0.8% in June, but Finnish production fell 1.2% that month.

South African factory output stagnated in June and was 2.8% lower than a year earlier.

Several countries released CPI data for July. Norwegian inflation slid from 1.9% to 1.5%. Portuguese inflation stayed at 0.9%. Danish inflation accelerated to 1.5%, and Irish consumer prices were unchanged on month and 0.2% below the year-earlier level.

U.S. new jobless insurance claims posted a 4-week average of 241K in the latest report. That very low level is representative of the trend all this year. Being a sign of labor market tightness, one of the great economic mysteries of 2017 is the continuing moderate pressure seen in wages.

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

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