Cross-Currents: U.S./Asian Political Tensions Versus Continuing Low U.S. Inflation

August 11, 2017

Concerns about a U.S./North Korean war continue to weigh on investor minds, but lower-than-forecast U.S. CPI data for July kept U.S. stocks stable and at the open following Thursday’s sell-off.

  • Trump declared America’s military options “locked and loaded” in the event that North Korea fires a missile near Guam.
  • U.S. total consumer prices ticked up 0.1% on month and were unchanged in July from April levels. On-year CPI inflation of 1.7% last month compares with a 2017 high of 2.7% in February. Core CPI also was 1.7% last month.
  • U.S. real weekly earnings rose 0.2% in July and just 1.1% from a year earlier.

Pacific Rim stock markets got whacked sharply again, dropping 2.1% in Hong Kong, 1.7% in South Korea, 1.6% in China, 1.3% in Singapore, 1.2% in Australia and 1.0% in India and Indonesia. Japan got a reprieve from the selling pressure but only because the country is celebrating its newest holiday, Mountain Day.

In Europe, equities have fallen by 1.3% in Italy, 1.2% in Spain, 0.9% in the U.K. and France, 0.7% in Switzerland, and 0.6% in Greece. Bucking the downtrend, the German Dax thus far has edged 0.1% higher.

Ten-year sovereign debt yields are down three basis points in France, two bps in Switzerland, the Netherlands, Germany and Britain but rebounded a basis point in the United States.

West Texas Intermediate crude oil dropped back 0.7% to $48.25 per barrel, and gold stayed under the $1,300 barrier, edging just 0.1% higher to $1,290.90 per ounce.

CPI price data also were released by Germany, France, Italy, Spain, Poland, and Romania.

  • German total and core CPI inflation edged up 0.1 percentage point to 1.7% in July, led by a 14.7% on-year jump in package holiday costs.
  • French consumer prices fell 0.3% on month and retained a 0.7% 12-month rate of increase in July. Core inflation was only 0.5%.
  • Italian CPI inflation slowed to 1.1% in July, which was associated with a 0.8% core rate, from 1.2% in June.
  • Spanish consumer prices dropped 0.7% on month and matched June’s on-year increase of 1.5%.
  • Polish consumer prices dipped 0.2% on month but accelerated to a 1.7% on-year rise.
  • Romania experienced a 1.4% rise of consumer prices in the year to July.

Other released price data showed

  • A 0.1% monthly dip in July of German wholesale prices, whose 2.2% 12-month rate of increase constituted an 8-month low. Wholesale price inflation had peaked last February at 5.0% but recorded fourth straight calendar year declines in 2013-2016.
  • Greek import prices slumped 1.0% on month in June, halving their on-year increase to 1.9%.
  • New Zealand food prices dipped 0.2% on month in July after rising by 2.4% in May and 0.2% in June.
  • New Zealand house prices fell 2.3% on month but rose 3.4% on year in July. Home sales were 24.5% less than in July 2016.

Like central banks in New Zealand, The Philippines, and Serbia that earlier on Thursday had announced decisions not to change key interest rates, the Bank of Mexico and Central Reserve Bank of Peru late in the day did the same (see reviews).

New Zealand’s manufacturing purchasing managers index slipped 0.6 points to a six-month low of 55.4 in July. The strongest factory conditions so far this year occurred in May when the PMI crested at 58.2.

Real GDP growth in Hong Kong, which had posted an 11-quarter on-year high of 4.3% in the first period of 2017, slowed to 3.8% last quarter.

The on-quarter rise of 2.2% in Singapore GDP in 2Q merely reversed a downwardly revised 2.1% drop in 1Q and left the on-year growth pace at 2.9%. Retail sales in Singapore fell 0.5% in June and were 1.9% above their year-earlier level.

Indonesia’s current account deficit roughly doubled in the second quarter to $4.96 billion, equal to 2.0% of GDP.

Turkey posted a $3.763 billion current account deficit in June.

Industrial production in India recorded the first on-year drop in June, albeit 0.1%, since June 2013. Industrial production in the second quarter averaged 2.0% more than a year earlier.

On-year growth in government spending in China last month slowed sharply to 5.4%, but such averaged a gain of 14.5% in January-July.

Also in the year to June, industrial production slid 0.3% in Mexico, climbed 6.5% in Hungary and surged 11.3% in Romania.

French employment advanced 0.5% last quarter, or 91.7K.

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

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