May Day 2018

May 1, 2018

A slew of countries are observing May Day holiday closures to honor workers. These include India, China, Hong Kong South Korea, Taiwan, Indonesia, Singapore, Italy, Spain, Switzerland, Greece, Germany, France, Mexico, Norway, South Africa, and Brazil.

The main market-sensitive developments are 1) a batch of weak British data weighing on sterling and 2) U.S. President Trump’s decision to further extend the exempted status of the EU, Canada and Mexico from of steep U.S. tariffs on steel and aluminum.

The pound fell another 0.7% overnight against the dollar to a 16-week low and is below $1.37 compared to a recent high of $1.4377 touched on April 17th.

  • Britain’s manufacturing purchasing managers index dropped 1.2 points from a 2-month high in March of 54.1 to a 17-month low in April of 53.9. The index was as high as 58.1 as recently as November.
  • The Bank of England announced a deceleration of core M4 money growth to a 12-month increase of only 1.2% in March versus 3.3% in February and 4.7% in January.
  • These reports follow a CBI survey conclusion that private sector output in the U.K. is its slowest since September 2016 and, more importantly, the preliminary first-quarter GDP growth estimate of 0.1% on quarter, lowest since the last quarter of 2012, and 1.2% on year.

By invoking national security concerns, Trump is ironically using the threat of tariffs on traditional U.S. military allies to solicit more advantageous trading conditions with the European Union and America’s NAFTA partners. The new deadline for U.S. steel and aluminum tariffs on these economies is June 1.

A consistently protectionist U.S. stance would be making sure that the dollar has a downward bias, but in addition to the aforementioned 0.7% rise against sterling, the U.S. currency overnight posted gains of 0.6% versus the Mexican peso, 0.4% relative to the kiwi and euro, and 0.3% vis-a-vis the yen, loonie, Swiss franc, and Australian dollar.

Japan’s manufacturing purchasing managers index recovered 0.7 points to a 2-month high of 53.8 in April. The output sub-index rose to a 3-month high. A different release revealed that Japanese motor vehicle sales, which had recorded on-year declines in each month of the first quarter, were 0.5% greater in April than a year earlier.

Japanese share prices closed up 0.2%, while the 10-year JGB yield slipped back two basis points to 0.03%.

Commodity prices weakened, with gold and copper easing to 4-week lows and West Texas Intermediate crude oil down 0.9% at 67.93 per barrel.

On the central banking front,

  • The Reserve Bank of Australia’s Official Cash Rate (OCR) was again left unchanged at 1.5%, its level since a pair of 25-basis point cuts in May and August of 2016. The decision was anticipated correctly. In a subsequent speech in South Australia, RBA Governor Lowe stressed that Australia’s economy is making progress but at a very gradual pace. Hence no urgency is attached to starting the process of interest rate normalization soon.
  • The Federal Open Market Committee begins a two-day policy review today. An interest rate hike is not expected tomorrow. No press conference is planned, but Fed watchers will be gleaning the released FOMC statement for clues to whether officials are predisposed to three or perhaps four total rate increases during 2018.

Two separate manufacturing purchasing managers surveys were reported for Australia. The AIG PMI dropped 4.8 points to a 2-month low of 58.3, but the CBA PMI went up 1.2 points to a 2-month high of 55.5.

Ireland’s manufacturing PMI bounded off March’s one-year low of 54.1 to a 2-month high of 55.3 in April.

The Dutch manufacturing PMI dropped to a 6-month high in April but still surpassed the 60 level at 60.7. Any reading over 50 implies expanding activity, and the pace of growth is quite robust when the 60 level is breached.

Denmark’s manufacturing PMI, in contrast, fell to a 12-month low of 53.3 in April from 62.3 in March and over 70 in February.

Building permits in New Zealand increased by a sharp 14.7% on month in March following rises of 6.4% in February and 0.2% in January.

Scheduled U.S. data to be released today include the manufacturing PMI survey, motor vehicle sales, and construction spending.

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

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