A Sharp Increase in European Long-Term Sovereign Debt Yields

June 6, 2018

Ten-year sovereign debt yields have recorded daily increases of 9 basis points in Italy and France, 8 bps in The Netherlands, 7 bps in Germany and Greece, 6 bps in Switzerland and the U.K., 5 bps in Spain and 4 basis points in Portugal. Yields in North America are up 4 bps in Canada and 2 bps in the United States, but the 10-year JGB yield is unchanged.

The dollar is mostly lower today, falling so far by 1.0% against the peso, 0.8% relative to the loonie, 0.7% versus the Australian dollar, 0.5% vis-a-vis the euro, 0.4% against the kiwi, and 0.3% relative to the yuan and sterling. The dollar firmed 0.2% against the yen and 0.1% versus the Swiss franc.

Share prices in the Pacific Rim strengthened 0.9% in Taiwan, 0.8% in India, 0.7% in New Zealand, 0.5% in Australia and 0.3% in Japan. China’s market was unchanged, and those of Singapore and Indonesia posted slight declines. In Europe, however, equities fell 1.2% in Greece, 0.7% in Italy and 0.2% in Switzerland and France. Turkey’s stock exchange fell over 1.0%, while the German Dax and British Ftse are 0.2% firmer.

West Texas Intermediate crude oil slipped 0.6%. Gold‘s price is flat.

U.S. first-quarter productivity growth was revised down 0.3 percentage points to just 0.4%. That followed a soft 0.3% increase in the final quarter of 2017 and resulted in a 1.3% on-year increase, same as occurred on average for all of 2017. The lower estimated productivity rise resulted in a faster 2.9% quarterly jump in unit labor costs, but there four-quarter rate of rise declined a half percentage point to 1.3%.

The U.S. merchandise trade deficit over the first third of 2018 totaled $288.8 billion and was 8.7% wider than a year earlier. From the standpoint of U.S. policy implications, it’s important to disregard services and focus only upon traded goods, because that’s what President Trump finds important. Among countries whose trade practices have been criticized by him, the January-April U.S. bilateral deficits were wider than a year earlier in the cases of Germany, Mexico, China, Japan but not Canada.

Canada’s C$ 1.9 billion trade deficit in April was substantially larger than the shortfall of C$ 1.1 billion a year earlier but much narrower than the March deficit of C$ 3.93 billion. Building permits in Canada recorded declines of 4.6% in April and 2.8% in February sandwiched around a 3.1% increase in March.

Two central banks announced policy changes today. The more significant decision was a 25-basis point repo rate hike at the Reserve Bank of India, marking the first tightening since January 2014. The repo rate becomes 6.25%, still 175 basis points lower than the peak in early 2014. India’s reverse repo rate was likewise increased a quarter percentage point to 6.0%, and the stance after these decisions was characterized at “neutral.”

The other monetary policy meeting took place at the National Bank of Poland, where the key interest rate as expected was left unchanged at 1.5%, its level since a pair of 50-basis point cuts during the first quarter of 2015.

Euroland’s retail purchasing manager surveys revealed a slight revival in May following a weather-distorted slump at the end of the first quarter. The euro area’s collective retail PMI rose 3.1 points in May to a 3-month high of 51.7, led by Germany’s 13-month high reading of 55.5. Although a 2-month high, Italy’s score of 47.3 reflected a further deterioration, and France’s 3-month high of 50.7 indicating very modest improvement.

The Irish services purchasing managers index climbed 0.9 to 59.3 in May, its best reading since January. Germany’s construction PMI score, 53.9, also indicated the fastest rate of improvement since January. Like the retail PMIs, German construction got whacked by harsh weather at the end of winter.

Australian GDP grew 1.0% last quarter, twice the quarterly pace in each of the previous two quarters. That raised on-year growth to 3.1% from 2.4%.

Swiss consumer price inflation accelerated from 0.8% in four of the six months through April to 1.0% in May, which was its greatest 12-month increase since March 2011. The data were influenced by pricier oil. Core CPI inflation declined 0.1 percentage point to a low 0.4%.

Japanese labor cash earnings in April were 0.8% higher than a year earlier in nominal terms but unchanged on an inflation-adjusted basis.

Indonesian consumer confidence improved to a 4-month high in May.

In the year to April, industrial production rose 1.9% in Spain but fell 0.2% in the Czech Republic.

U.S. mortgage applications rebounded 4.1% last week in the face of a 9-basis point decline of the 30-year fixed rate mortgage.

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



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