Stronger Equities But Softer Dollar

June 4, 2018

Stocks advanced overnight by 1.9% in Hong Kong, 1.5% in Taiwan, 1.4% in Japan, 1.2% in Singapore, 0.6% in Australia, 0.5% in China and 0.4% in South Korea. New Zealand’s market was shut in observance of the Queen’s Birthday, and the Indian Sensex index dropped 0.6%. In Europe, equities have jumped 1.8% in Spain and risen 0.7% in the U.K. as well as 0.3% in France, Italy, and Switzerland. The German Dax is only steady.

The dollar is unchanged against the yen but shows losses so far today of 1.1% against the Australian dollar, 0.8% relative to the New Zealand dollar, 0.6% vis-a-vis the euro, 0.4% versus the Canadian dollar, 0.5% against the Swiss franc, and 0.3% vis-a-vis the yuan and sterling.

The U.S. delegation at the weekend’s meeting of G7 finance ministers and central bankers were lectured by a united front from the other attendees on the Trump administration’s unilaterally aggressive trade policies. This preparatory meeting just a week before the annual summit of G7 leaders released a statement that included the following excerpts:

Concerns were expressed that the tariffs imposed by the United States on its friends and allies, on the grounds of national security, undermine open trade and confidence in the global economy.

Finance Ministers and Central Bank Governors requested that the United States Secretary of the Treasury communicate their unanimous concern and disappointment.

Ministers and Governors had a frank exchange on the benefits of an open rules-based trading system and many highlighted the negative impact of unilateral trade actions by the United States. Ministers and Governors agreed that this discussion should continue at the Leaders’ Summit in Charlevoix, where decisive action is needed. The aim of this should be to restore collaborative partnerships to promote free, fair, predictable and mutually beneficial trade.

Investor optimism was buoyed just before the weekend by the solidly positive U.S. monthly jobs report and by relief that governments are now in place in both Spain and Italy, which reduces political uncertainty at least in the near term.

Sovereign debt yields among members of the euro area continued to converge, with 10-year rates climbing 3 basis points in Germany but declining by 12 bps in Italy, 11 bps in Portugal, 8 bps in Spain and 3 bps in Greece.

The price of West Texas Intermediate crude oil dropped another 0.5% and is now trading in the middle of the $60-$70 per barrel range in contrast to $70+ last month from the 7th through the 24th. Gold is little changed.

Better-than-expected Australian data released today also boosted market confidence.

  • Corporate profits in Australia leaped 5.9% last quarter and were 6.5% higher than a year earlier. Inventories and factory sales also performed well in the first quarter.
  • Retail sales grew 0.4% in April, twice as much as forecast, and were 2.6% higher than a year earlier.

Not all today’s economic news had an upbeat tone, however. For example, the Sentix measure of investor sentiment toward the euro area was severely depressed by Italy’s anti-Europe political mood, falling to a 19-month low reading of 9.3 this month from 19.2 in May.

JP Morgan’s global manufacturing purchasing managers index in May dropped 0.2 points to a 9-month low of 53.1 in May.

Malaysia’s manufacturing PMI fell to an 11-month low of 47.6, signaling a fairly rapid contraction of activity in May accompanied by a 19-month low in input price inflation.

Producer prices in the euro area stagnated in April following 0.1% back-to-back month-on-month upticks. A 0.4% drop in energy prices offset a 0.1% collective rise in the rest of the PPI index, which was 2.0% above its year-earlier level.

Romanian producer price inflation accelerated to 4.2% in April.

The British construction purchasing managers index held steady in May, matching April’s 5-month high of 52.5. A harsh winter depressed the index to a 20-month low of 47.0 in March.

Indonesia’s manufacturing PMI edged 0.1 point upward to a 23-month high in May of 51.7.

Turkish CPI inflation of 12.15% in May was at a six-month peak and after last November’s 12.98% at its most elevated point since February 2014. Producer price in Turkey last month surpassed their year-earlier level by a whopping 20.2%.

In Thailand, by contrast, latest data showed benign CPI inflation of 1.5% in May (0.8% core) and producer price inflation of 0.7% in April. And in Indonesia, CPI inflation last month was 3.23% in May, marginally lower than in April.

Japan’s monetary base posted a 12-month increase in May of 8.1%, up from 7.8% in April but well down from 17% in 2017 and 25% in 2016. The Bank of Japan balance sheet totaled JPY 540.8 trillion at the end of May versus JPY 540.8 trillion a month earlier and JPY 521.4 trillion at the end of 2017.

U.S. factory order data will be released today along with the N.Y. regional purchasing managers survey results, known as the NAPM index.

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




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