Watching Several Situations
May 16, 2018
A weaker-than-expected Japanese GDP report saw negative growth on both a nominal and real basis last quarter.
There was additional evidence of less inflation than assumed in Europe, and Australian wage costs data show benign containment.
Treasury-compiled capital movements revealed another big U.S. inflow in March.
It’s been a busy day for central bank news, with policy reviews in Thailand, Poland, and Iceland resulting in no change in interest rates. Brazilian monetary officials also are meeting today. Turkey’s central bank appears poised to take some kind of action to buttress its beleaguered lira.
North Korea is threatening to scrap next month’s scheduled Kim-Trump summit. Escalated tension between Iran and Israel complicates the matter.
After a sharp run-up, the 10-year U.S. treasury yield has stabilized at 3.07%. This beachhead above 3% and talk of a further rise to the middle of a 3-4% range is weighing on stocks.
In overnight trading, share prices fell 2.2% in New Zealand, 0.7% in China and 0.4% in Japan and India. Stocks in Europe plunged 2.3% in Italy on continuing political dysfunctionality and also show losses of 1.0% in Spain, 0.7% in Greece and 0.3% in Switzerland. But the German Dax is up 0.3%, and after yesterday’s drop, U.S. equity futures suggest a higher open.
The dollar rose 0.5% against the euro, 0.3% versus the peso, and 0.2% vis-a-vis sterling but has also lost 0.3% against the kiwi, 0.2% relative to the Australian dollar, and 0.1% versus the Swiss franc and yen. The loonie and yuan are steady.
Comex gold dropped another 0.3% overnight and, at $1,286.50 per ounce, further below the key $1,300 level. WTI oil fell 0.4% to $71.03 per barrel.
Japanese real GDP fell 0.6% at an annualized rate between 4Q17 and 1Q18, with no growth support from either personal consumption, non-residential business investment, or public sector spending. Residential investment contracted 8.2%, its third straight quarterly drop, and inventories accounted for a 0.6 percentage point drag on GDP growth. Nominal GDP fell 1.5% at an annualized rate, and real GDP was only 0.9% higher than a year earlier. The GDP price deflator slipped marginally from the 4Q17 level and showed an on-year rise of just 0.5%.
Despite a 0.8% on-month and 2.6% on-year advance in energy prices, CPI inflation in the euro area slowed 0.1 percentage point to 1.2% in April. Core inflation dropped to only 0.7% from 1.0% in the first quarter and 1.2% in April 2017.
German consumer prices on a harmonized basis dipped 0.1% on month and decelerated to a 12-month rise of 1.4% in April.
Australia’s quarterly wage price index rose 0.5% in the first quarter, a bit less than forecast, and this kept the 2.1% on-year rate of increase from accelerating. According to data reported by Westpac, Australian consumer confidence fell for a second straight month by 0.6% during March.
Although Japanese industrial production in March was revised upward slightly, such posted a first quarter-on-fourth quarter slide of 1.3% following a 4.4% increase in 2017. In March, capacity slid 0.1%, and capacity use rose 0.5%.
Net long-term capital inflows to the United States in March totaled a robust $61.8 billion and averaged $57.3 billion per month in the first quarter according to Treasury-compiled data. Despite a net $38.5 billion outflow of all long- and short-term capital measured by the Treasury, the first quarter experienced an average inflow of $43.6 billion per month.
The Bank of Thailand’s policy interest rate has been at 1.50% since a 25-basis point reduction in April 2015 and was left at that level by a unanimous vote after the latest policy review. A released statement hints that the rate bias remains downward because of external risks.
Iceland’s central bank retained a 4.25% 7-day term deposit rate. The last change, a cut of 25 basis points, was made last October. There were three such cuts in all during 2017. Officials are keeping a tight monetary stance to contain risks from rapid demand growth.
Poland’s monetary reference rate was kept at 1.50%, its level since cuts of 50 basis points in January and March of 2015.
Italian CPI inflation slowed to 0.5% in April from 0.8% in March. Harmonized consumer prices in Cyprus and Austria were 0.3% lower and 1.8% higher than a year earlier in April.
New home prices in China rose 0.6% last month.
In the year to March, retail sales increased 4.3% in South Africa and 1.8% in the Netherlands. Industrial orders in Italy climbed 2.6%, while Turkish industrial production climbed 7.6%.
Scheduled U.S. data to be released today feature industrial production and capacity usage and include housing starts and building permits. There is an ECOFIN meeting in Europe, and Brazil’s monetary policy committee, Copom, is reviewing its stance.
Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: euro area CPI, Japanese GDP, North Korean second thoughts about a meeting with Trump
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