Rise in Sovereign Debt Yields Extended
December 20, 2017
The Senate approved the tax bill without any support from the Democrats by a vote of 51-48. All that remains is one final assured vote today in the House of Representatives and President Trump’s signature on the bill. This legislation is projected to boost economic growth in 2018 but also will raise federal deficit spending substantially for years to come.
Congress doesn’t get a respite. A debt ceiling extension before midnight on Friday is needed to avert a federal government shutdown. A deal in this regard is unlikely to be reached until the last minute or so.
The tax bill has lifted long-term Treasury yields sharply and exerted continuing upward pressure on the yields of sovereign debt of other nations. The 10-year Treasury yield of 2.47% is at its highest level since March. The 10-year British gilt yield rose 5 basis points overnight to 1.25%, and German bund and Japanese 10-year JGB yields are each up 2 basis points to 0.40% and 0.05%.
U.S. stock futures point to a further rise at today’s open. The huge corporate tax cut will goose U.S. corporate profits. In other stock markets today, Japan’s Nikkei rose 0.1%, but markets closed down 0.8% in Indonesia and 0.3% each in China, Hong Kong, New Zealand, South Korea and Singapore. Share prices in Europe so far have slipped 0.4% in Italy, 0.7% in Spain, 0.3% in France and 0.2% in Germany but are unchanged in Britain.
Gold and oil have risen by 0.4% and 0.3% to $1,269.20 per ounce and $57.75 per barrel.
Like Hungary’s central bank yesterday, the Swedish Riksbank and Bank of Thailand today announced unchanged policy interest rates. The Swedish repo rate has been at negative 0.50% since a 15-basis point drop in February 2016, and Thailand’s one-day repo rate has been 1.5% since a 25-basis point cut in April 2015. Thailand is unlikely to change its rate in 2018, and Swedish officials do not expected to start normalizing its rate before the second half of next year.
The Bank of Japan Board met for the first of a two-day policy review meeting.
Japan’s all-industry index went up 0.3% in October, the most for any month since April, and this doubled its 12-month rate of increase to 2.0%. Although construction slipped 0.3% in October, increases of 0.5% in industrial output and 0.3% in service-sector activity more than offset the drag from construction.
New Zealand recorded a NZD 1.193 billion trade deficit in November, which is almost three times greater than the average shortfall in the previous five Novembers. There was a current account deficit of NZD 4.679 billion in the third quarter of 2017 compared to a gap of NZD 4.965 billion in the year-earlier quarter. As a percent of GDP, the current account deficit equaled 2.6% over the past four reported quarters, which is similar to 2.7% during the four quarters through 3Q16.
Westpac’s index of Australian leading economic indicators went up 0.1% for a third straight month in November.
Malaysian CPI inflation slowed 0.3 percentage points to 3.4% in November.
Euroland posted a EUR 30.8 billion seasonally adjusted current account surplus in October, down from EUR 39.2 billion in September and smallest since July. Exports fell 2.5% on month. The unadjusted EUR 352 billion deficit accrued over the 12 months through October 4.3% narrower than in the previous 12-month period.
German producer prices edged up just 0.1% in November, reducing on-year PPI inflation to a 4-month low of 2.5% from 2.7% in October and 3.1% in September. Non-energy producer prices dipped 0.1% on month and were 2.3% higher than a year earlier.
The CBI British distributive trades survey produced a 6-point drop to a reading of 20 in December, a 2-month low.
Italy’s current account surplus widened 51% on month to EUR 6.55 billion in October.
U.S. mortgage applications fell 4.9% last week. Weekly U.S. petroleum inventories and monthly existing home sales will be released later today. Revised U.S. GDP data are due tomorrow.
Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Euroland current account, German PPI, Japanese all-industry index