Less Risk Aversion Now but Respite Might Not Last

August 14, 2017

North Korea hasn’t backed down rhetorically, and U.S. President Trump has every reason to keep foreign crisis distraction on the front-burner in light of the developments in Virginia.

Nonetheless, the new week kicked off with last week’s haven-favored assets trimming their gains. Investors have shown temporary faith that a nuclear war will be averted one way or another.

  • Stock markets advanced in non-Japan Asia and Europe. Equities closed up by 1.6% in Hong Kong, 0.9% in China and Singapore, 0.7% in Australia, 0.8% in India and 0.6% in New Zealand and Indonesia. Equities have so far climbed in Europe today by 1.5% in Spain, 1.4% in Switzerland, 1.3% in Italy, 1.1% in Germany, 1.0% in France, and 0.5% in Great Britain where the clicking Brexit timetable keeps winding down without progress.
  • Japan’s Nikkei fell 1.0%, but U.S. stock futures are taking their cue from the better tone of other equity markets.
  • Ten-year German bund yields bounced back four basis points, and 10-year U.S. Treasury and British gilt yields are each three basis points firmer.
  • Comex gold and WTI crude oil have settled back 0.4% each to $1,288.60 per ounce and $48.62 per barrel.
  • The dollar recovered 0.5% against the yen, 0.4% relative to the Swiss franc and kiwi, 0.3% versus sterling, 0.2% vis-a-vis the euro and loonie and 0.1% against the yuan. One notable exception from this broad-based upturn has been the Mexican peso against which the dollar is down 0.4% today.

Economic data released today revealed stronger-than-assumed Japanese economic growth in the second quarter, slower-than-assumed Chinese retail sales, industrial production and business investment last month, and a slightly greater-than-projected drop in euro area industrial production at the end of the second quarter.

Japanese real GDP expanded 4.0% at an annualized rate (SAAR) between 1Q and 2Q, the strongest quarterly pace in nine quarters. Personal consumption rose 3.7%, a much more robust pace than gains of 1.5% in 1Q and 0.6% in the final quarter of 2016. Likewise, growth in residential investment of 6.0% SAAR, non-residential capital spending of 9.9% SAAR, and public spending of 5.1% accelerated significantly, but net foreign demand exerted a drag of 1.1 percentage points on GDP growth. Real GDP was 2.0% greater than in the second quarter of 2016, but the GDP price deflator posted an on-year decline of 0.4%.

On-year growth in Chinese retail sales slowed to 10.4% in July, least since February, from 11.0% in June. On-year growth in industrial production of 6.4% after 7.6% in June was also the weakest result since February, and a year-to-July increase of 8.3% in fixed asset investment was below 8.6% in January-June and barely better than 8.1% in  full-2016.

Industrial production in Euroland fell 0.6% in June, led by monthly drops of 1.2% in France and 1.0% in Germany, and this trimmed year-on-year growth to 2.6% from 3.9% posted in May. Industrial production had previously risen in three straight months and was still 1.2% greater in 2Q than 1Q.

Ireland’s construction purchasing managers index fell 1.2 points to a 6-month low of 56.6 in July, which still implies pretty robust growth.

New Zealand’s Performance of Services index slipped 2.3 points to a 3-month low of 56.0 in July.

The volume of New Zealand retail sales climbed 2.0% in the second quarter, three times faster than expected.

In the second quarter, real GDP climbed 0.9% in Cyprus but lifted on-year growth by just 0.2 percentage points to 3.5%.

Portuguese real GDP edged up 0.2% last quarter and retained a 2.8% on-year advance.

Indian wholesale price inflation almost doubled to 1.9% in July due to food cost pressures and despite lessening inflation associated with energy and manufactured goods.

Over the twelve months to July, consumer prices increased only 0.5% in Finland and 0.8% in Poland.

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

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