Sharp Rise in Long-Term Interest Rates

November 29, 2017

Ten-year sovereign debt yields this Wednesday have climbed nine basis points in the U.K. and five basis points in the United States and Germany. The 10-year Japanese JGB yield bucked the trend and has dipped a basis point to 0.02%. Janet Yellen, the outgoing Fed Chair, delivered her final major congressional testimony, asserting that economic growth both in the U.S. and abroad is becoming  more broadly based and predicting a continuation of the current gradual increases in the federal funds rate.

Tech stocks have been under selling pressure. The DOW has trimmed its initial gains on the day, and the S&P has relinquished them all. In other equity markets, share prices rose 0.5% in Japan and Australia and 0.4% in Hong Kong. Stocks in Europe show advances of 1.5% in Spain, 0.7% in France, and 0.6% in Germany along with a 0.5% drop in Great Britain.

Overnight movements in the dollar have been comparatively muted. The greenback is up 0.4% against the yen but down 0.4% versus sterling. There have been 0.3% advances against the Canadian and Australian dollars and 0.1% upticks relative to the yuan and kiwi. The dollar edged 0.1% lower against the euro and peso.

Both gold (down 0.7% to $1,289.90 per ounce) and oil (off 0.4% to $57.78 per barrel) lost value.

3Q GDP data were reported by the United States, France, and Sweden.

  • Quarterly U.S. growth at an annualized rate was revised upward to 3.3% in 3Q from 3.0% reported initially. There were upward revisions in non-residential investment, government spending. Inventories enhanced the growth rate by 0.8 percentage points. On-year GDP growth was 2.3% compared to 1.5% over the four quarters through the third quarter of 2016 and 2.4% in 3Q15. The price deflator for personal consumption, a measure of inflation which the Fed targets at 2.0%, slowed to 1.5% from 1.6% in the prior quarter. Core PCE dipped to 1.4%.
  • French real GDP grew by a non-annualized 0.5% between 2Q and 3Q and was 2.2% above its year-earlier level. By contrast, French GDP only rose 1.1% in calendar 2016.
  • Swedish GDP climbed 0.8% last quarter and accelerated to a year-on-year pace of 2.9% from 2.7%.

Japanese retail sales disappointed in October, remaining unchanged on month and posting a 0.2% on-year decline including a 0.7% decrease in large store sales.

Euroland’s economic sentiment index rose 0.5 points to 114.6 in November, the highest level since October 2000. Industrial confidence hit a record high, and the economic climate index printed at its best level since June 2007, i.e., 1.49.

According to preliminary information from six reporting German states, consumer price inflation in Euroland’s biggest economy rose back to 1.8% in November. That was the level in both August and September before a dip to 1.6% in October. Consumer prices went up 0.3% compared to October.

Austria’s manufacturing purchasing managers index climbed 2.5 points to 61.9 in November, which matches the highest point on record previously experienced in February 2011.

The UBS-compiled Swiss consumption indicator edged up 0.03 points to 1.54 in October, the highest such has been in at least a half year. The Swiss ZEW expectations index jumped 8.7 points to 40.7 in November.

Sweden’s economic tendency index exceeded expectations in November with a 0.7 point advance. Consumer confidence and sentiment in the manufacturing sector both improved.

French consumer spending fell 1.9% on month and by 0.6% from a year earlier in October, but consumer confidence improved in November.

Spanish consumer price inflation held steady at 1.6% this month. Portuguese consumer confidence rose in November.

Shop prices in the U.K. posted a 0.1% on-year dip for a third straight month in November.

U.S. pending home sales surged 3.5% in November, their biggest monthly advance since March.

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


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