Dollar Down, Stocks Up, and Intra-Euroland Yield Spreads Contract Further

May 31, 2018

While the 10-year German bund yield remained unchanged overnight, comparable sovereign debt yields elsewhere in the euro area fell by 11 basis points in Italy, six basis points in Portugal and Greece and 3 bps in Spain despite Prime Minister Rajoy’s fragile hold on political power.

The dollar weakened 0.4% against the euro, Swiss franc, and kiwi, 0.3% relative to the loonie, 0.5% versus sterling and 0.2% vis-a-vis the Canadian dollar. At the same time, the dollar rose 0.3% agains the peso and 0.2% versus the yen.

Share prices in China and Hong Kong jumped 1.8%, aided by the release of the Chinese government’s May manufacturing and non-manufacturing purchasing manager surveys, which exceeded market expectations. The manufacturing PMI rose a half point to a 6-month high of 51.9, while the non-manufacturing Chinese PMI edged 0.1 point higher to a 5-month high of 54.9.

In stock market action elsewhere around the Pacific Rim, there were gains of 0.9% in India, 0.8% in Japan, 0.6% in South Korea and 0.5% in Australia and Taiwan but losses of 0.5% in Indonesia and Singapore.

The German Dax is down 0.5%, but other European markets show gains of 0.5% in Italy, 0.8% in Greece, 0.3% in Spain and Switzerland, 0.2% in the U.K. and 0.1% in France.

West Texas Intermediate crude oil retreated another 0.8% to $67.69 per barrel. Gold firmed 0.2%.

The British 10-year gilt yield edged a basis point higher. So has the 10-year Treasury in futures trading, while the 10-year Japanese JGB is unchanged a a mere 0.02%.

Euroland consumer price inflation increased 0.7 percentage points to 1.9%, most in a year. The 12-month increase of energy prices accelerated to 6.1% from 2.6%, and services recorded a 1.6% on-year increase versus 1.0% in the year to April.

Euroland’s jobless rate edged down 0.1 percentage point to 8.5% in April. Such was at 9.2% a year earlier.

First-quarter GDP data were reported for several European economies.

  • Spanish GDP rose 0.7% from 4Q17 and was 3.0% greater than a year earlier.
  • Finnish GDP increase 1.2% on quarter and 3.1% on year.
  • A 0.6% quarterly rise in Swiss GDP was associated with on-year growth of 2.2%, most since the final quarter of 2014.
  • Danish GDP rose 1.2% from 4Q and 3.1% versus a year earlier.

Consumer confidence in the U.K. rose to a 2-month high of minus 7 in May from -9 in the prior month. British on-year growth in M4 money halved to 1.1% in April, and the Nationwide house price index for that economy posted a lower on-year increase in May of 2.4%.

Italian CPI inflation doubled to 1.1% in May, and that economy’s jobless rate increased by 0.1 percentage point to 11.2% in April.

French CPI inflation advanced by 0.4 percentage points to 2.0% in May, the most since April 2012. French producer prices slipped 0.6% in April but were 1.7% higher than a year earlier. Also in the year to April, producer prices increased 2.7% in Hungary but fell 1.8% in Cyprus.

Retail sales in the year to April rose 2.2% in Switzerland, which beat expectations, and by 1.5% in Greece and 5.3% in South Korea.

Among other released South Korean data, business sentiment ticked down a point to a 2-month low in May, and industrial production climbed 3.4% on month but just 0.9% on year in April.

Japanese industrial production easily underperformed expectations in April, rising just 0.3% on month and 2.5% on year. Officials said the trend in production is now only picking up slowly. Japanese housing starts and construction orders respectively recorded on-year increases in April of 0.3% and 4.0% following 12-month declines of 8.3% and 4.0% in March.

Australian private business investment grew just 0.4% last quarter, roughly half as much as expected. In the year to April, Aussie private credit expanded 5.1%, and M3 money went up 2.6%.

New Zealand business sentiment weakened in May.

Turkey recorded another large trade deficit of $6.67 billion in April after a shortfall of $5.86 billion in March.

U.S. data releases today include personal income and consumer expenditures, the Chicago regional PMI, pending home sales, and weekly jobless insurance claims. Canada reports 1Q and March GDP.

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


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