Plenty of News to Focus Upon

April 27, 2018

The meeting between the presidents of South Korea and North Korea agreed to end their multi-decade war and to deescalate nuclear armament.

Share prices in the Pacific Rim climbed 1.3% in New Zealand, 1.0% in Hong Kong, and 0.7% in Japan, South Korea, India and Australia.

British GDP growth slowed more than forecast last quarter, edging just 0.1% higher, the smallest increase since the final quarter of 2012. Construction plunged 3.3%, and both manufacturing and service sector activity advanced more slowly than in the final quarter of 2017. On-year GDP growth fell to 1.2% from 1.6% in the second half of 2017 and 1.7% in full-2017.

In other British data, consumer confidences slipped to a 2-month low, but the on-year Nationwide house price comparison increased to a 3-month high of 2.6%.

Sterling fell 1.1% against the dollar, and the 10-year British gilt yield dropped five basis points to 1.45%. But the Ftse shows a 0.9% gain in share prices.

French GDP growth last quarter of 0.3% was also slower than forecast and less than half as much as the quarterly rise in the final quarter of 2017. On-year GDP expansion slowed a half percentage point to 2.1%. French consumer spending in March climbed only 0.1% on month.

On-year GDP growth in Spain dipped below 3.0% to 2.9% in the first quarter, and CPI inflation in Euroland’s fourth largest economy decelerated in April.

German import prices flat-lined in March after a 0.6% decline in February, leaving on-year import price inflation at negative 0.1% compared to a 2017-on-2016 increase of 3.8%. Imported energy prices were 7.1% higher than in March 2017, while all other import prices dropped 1.0% on year. Euro strength has been a headwind against the ECB’s effort to raise inflation back to target.

German unemployment fell less sharply in April (7K) than the 21K per month pace in the first quarter of this year.

Economic sentiment in Euroland stayed level with a reading of 112.7 in April. Analysts were looking for a 111.5 score. But the area’s business confidence index dropped to 1.35 from 1.44.

Share prices in the euro area are up so far today by 0.8% in Germany but just 0.3% in France. Italian and Spanish stock markets have slipped 0.6% and risen only 0.1% thus far.

The dollar has risen 0.3% against the euro, 0.2% versus the Swiss franc and kiwi, and 0.1% relative to the loonie. The greenback is unchanged against the yen, Aussie dollar, peso, and yuan.

Despite a marked momentum slowdown in personal consumption, U.S. quarterly GDP growth last quarter of 2.3% expressed at an annualized rate (SAAR) did not slip under the 2.0% threshold as had been feared, according to preliminary data. While consumer spending of 1.1% SAAR was just a fourth as strong as in the final quarter of 2017, non-residential investment (6.1%) and exports (4.8%) grew robustly, and the contribution from inventories accounted for a full percentage point favorable swing between 4Q17 and 1Q18. Real GDP climbed 2.9% on year between 1Q17 and 1Q18, and the on-year measures of inflation from the personal consumption price deflator (1.8%) and core PCE deflator (1.7%) were each greater than those in the final quarter of 2017.

Japanese industrial production, unemployment, retail sales, Tokyo CPI, housing starts and construction orders were reported:

  • Industrial production grew 1.2% in March, not enough to prevent a 1.4% first-quarter drop in output nor enough to persuade officials to change the trend designation of “picking up slowly.” The assessment had been reduced two months ago. Industrial production was 2.2% greater than in March 2017.
  • The jobless rate remained at 2.5% in March, and employment posted a big 2.9% on-year increase.
  • Retail sales in March fell 0.7% on month and rose only 1.0% on year.
  • Consumer price inflation in Japan’s capital and largest city fell 0.4% in April, halving the year-on-year pace to 0.5%. Inflation excluding perishable food and energy decelerated to 0.3% in April from 0.5% in March.
  • Housing starts (down 8.3%) and construction orders (-4.0%) were each lower in March than a year earlier.

These Japanese data were overshadowed by the BOJ’s policy announcement and publication of a new quarterly Outlook for Economic Activity and PricesMonetary policy settings were not changed, and there was even a dissenting vote (again by Kataoka) for an even easier stance. Negative short term interest rates and asset purchases have and will continue to be used to constrain the 10-year JGB yield to around zero percent. This stimulus will not end before core inflation exceeds the 2% target for awhile, and officials are convinced that 2.0% core inflation can be maintained in a stable manner. The fresh element in today’s policy reaffirmation is that unlike before, BOJ officials are not predicting a date when the inflation goal is likely to be achieved. When quantitative stimulus was unveiled five years ago, they expected the mission to be accomplished by April 2015. and the target date subsequently got pushed back many times. Now there’s no indication when the goal will be met, just an assertion of confidence that such will happen because the output gap is already positive and widening and the belief that medium- and long-term inflation expectations will in time creep upward. This confidence, in turn, is based on core inflation being positive, persistent moderately-paced economic growth, and the tenacity of monetary policy to stay the ultra-stimulative course. However, the quarterly Outlook does grant that inflation risks are skewed to the downside and expresses disappointment that despite other signs of ever-tightening labor market conditions that wage growth remains cautious.

Australian producer price inflation held steady at 1.7% in the first quarter of 2018. Import prices were unchanged from a year earlier.

Gold is little changed. Oil and metal commodity prices are lower today.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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