A Focus on U.S.-Sino Trade Talks and European Politics

May 22, 2018

Trade tensions between China and the United States appeared to lessen further as China announced it will cut tariffs on autos and progress was reported on a ZTE plan.

Italy’s President Mattarella did not immediately endorse the Prime Ministerial choice of Giuseppe Conte proposed by a League and Five Star to lead the next government. Conte has little prior experience in politics. The 10-year Italian sovereign debt yield in response has settled back 8 basis points and pulled down other peripheral 10 year yields by 14 basis points in Greece and 4 bps each in Spain and Portugal.

In light of eroded confidence in British Prime Minister May’s ability to navigate a transition toward Brexit, there is talk that snap elections in the U.K. may become necessary later this year. 

In other British news,

  • Bank of England officials are testifying before the Treasury Committee of Parliament. Governor Carney spoke of a meaningful contraction of real household income because of Brexit. Vlieghe expects a few rate hikes in the future.
  • April public finances were better. On the heels of last financial year’s decline of about GBP 2 billion, April’s public sector borrowing, GBP 6.23 billion, was down from GBP 7.3 billion a year earlier.
  • The CBI’s monthly industrial trends survey produced a reading for orders in May of -3, weakest in a year and a half.

The dollar is marginally lower for the most part, with overnight dips of 0.2% versus the euro and sterling and of 0.1% vis-a-vis the loonie, Swiss franc, and Australian dollar. Against the yen and kiwi, the dollar is unchanged. Bigger dollar losses have been experienced against emerging market currencies like the Turkish lira and peso.

Monday’s strong U.S. stock market performance did not spill over into other countries. Some Asian stock markets, South Korea and Hong Kong, were shut in observance of Buddha’s birthday. Elsewhere in the Pacific Rim, share prices fell 0.7% in Australia, 0.3% in Taiwan, and 0.2% in Japan but were unchanged in China and New Zealand. In Europe, stocks show overnight rises of 0.6% in Spain, 0.3% in Italy and Greece and 0.1% in Germany and the U.K..

Commodities have strengthened with gains of 0.7% in copper, 0.3% in oil and 0.2% in gold.

In contrast to the aforementioned slide of 10-year sovereign debt yields in Italy, Greece, Portugal and Spain, the 10-year German bund and British gilt yields rose 4 basis points each, and the 10-year Treasury yield is 2 bps higher in futures trading.

Japanese supermarket sales in April posted their biggest on-year decline (1.2%) thus far in 2018.

Spain’s 830 million euro trade deficit in March was the smallest in 20 months.

Swiss M3 money growth of 3.3% in April matched March’s result but was less than money growth in the first two months of 2018.

Sweden’s jobless rate rose to 6.8% last month from 6.5% in March but was lower than 7.2% in April 2017. Seasonally adjusted unemployment ticked up 0.1 percentage point to 6.3%.

Irish producer prices posted declines in April of 0.8% from March and 4.0% from a year earlier.

South Africa’s index of leading economic indicators declined 0.8% in March, its greatest monthly drop in 11 months.

A review today of Hungarian monetary policy is not expected to result in a change of the 0.90% key central bank interest rate.

The U.S. Richmond Fed manufacturing index and Mexican retail sales and wholesale turnover data get reported today. Tomorrow’s calendar of releases is considerably more active than today’s and includes preliminary euro area PMIs, Japan’s all industry index, British consumer prices, and U.S. new home sales and FOMC minutes.

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

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