Lower Share Prices and Euro, Mixed dollar and Long-Term Rates

June 8, 2018

Equities lost 2.0% in Hong Kong, 1.9% in Indonesia, 1.4% in China, 1.1% in Singapore, 0.9% in Taiwan, 0.8% in South Korea and 0.6% in Japan. In Europe, share prices currently show losses of 1.5% in Italy, 1.2% in Greece, 1.0% in Spain, 0.7% in Germany, 0.6% in Switzerland, 0.4% in the U.K. and 0.3% in France.

The euro’s been depressed by some disappointing data, sliding 0.4% against the dollar and 0.8% against the yen.

  • German industrial production dropped unexpectedly in April and by a pretty substantial 1.0%. Factory output was down 1.7% in the month.
  • French industrial production declined 0.5% in April following a 0.4% slide in March and recorded an average 0.5% loss in February-April versus the previous three months.
  • Greek industrial production slumped 2.9% in May.
  • The seasonally adjusted German merchandise trade surplus narrowed EUR 2.2 billion in April to EUR 19.4 billion as imports grew 2.2% while exports slipped 0.3%. April’s unadjusted current account surplus dropped from 29.1 billion euros in March to EUR 22.7 billion in the following month.
  • On-year growth in German labor costs, which had decelerated from 3.1% in 2015 to 2.8% in 2016 and 2.2% in 2017, remained low at 2.3% in the first quarter of this year.
  • All this comes after yesterday’s confirmation that euro area GDP expanded just 0.4% last quarter following three straight quarter-0n-quarter increases of 0.7%.

Ten-year sovereign debt yields jumped 14 basis points in Greece and five basis points in Italy in contrast to drops of 5 bps in Germany, 4 bps in The Netherlands and Great Britain, and 2 bps in France. The 10-year U.S. Treasury yield and 10-year Japanese JGB yield dipped a basis point.

The dollar fell overnight by 0.4% against the yen and 0.1% versus the peso but rose 0.4% relative to the euro and Swiss franc, 0.2% vis-a-vis the yuan and 0.1% against sterling, the kiwi and loonie. The dollar advanced 0.2% against the yuan and even more against other emerging market currencies, which have been hit by expectations of continuing Fed tightening and trade war fears.  The South African rand, for instance, sank 1.5%.

West Texas intermediate crude oil declined 0.5% to $65.63 per barrel. Gold is basically unchanged in price.

The second estimate of quarterly Japanese GDP growth last quarter remained negative 0.6% at a seasonally adjusted annualized rate, matching the preliminary figure. GDP was only 1.1% higher than in the first quarter of 2017. Personal consumption, residential investment, and government investment contracted last quarter, and non-residential business investment grew only half as quickly as in the final quarter of 2017. Inventories exerted a drag on growth, but net foreign demand made a positive contribution.

Japan’s current account surplus in April was smaller than forecast. The unadjusted surplus of JPY 1.845 billion was 6.9% below the year earlier figure, and the very similar JPY 1.886 trillion surplus when seasonally adjusted was 10% narrower than street forecasts.

Japanese bank lending grew 2.0% on year in May, similar to the 2.1% result for April and the first quarter. Japan’s economy watchers index, an index of perceptions among service sector workers, unexpectedly dropped 1.9 points to a 20-month low reading of 47.1 in May. Expectations about the future also weakened.

China’s trade surplus in May of $24.92 billion was smaller than anticipated as imports shot up 26% on year compared to growth of 12.6% in exports. The year-to-date $102.8 billion surplus was only 72% as large as the year-earlier surplus.

Expectations for the annual summit of G7 leaders in Canada today and tomorrow could hardly be worse. The specter of trade disputes between the United States and everyone else hangs over the talks, and President Trump will be cutting out of the meetings at 10:30 am tomorrow to conveniently miss discussion about climate change.

The Central Reserve Bank of Peru’s key interest rate was left unchanged at 2.75%, its level since the last of six 25-basis point cuts, which was done three months ago. The first of those reductions was made in May 2017.

Canada’s May labor market data were lackluster. The 5.8% jobless rate failed to drop and was a full two percentage points above the U.S. rate. Also, the number of employed workers fell 7.5K, marking their second decline in a row, and the labor participation rate edged down 0.1 percentage point to 65.3%. On a brighter note, Canadian capacity utilization last quarter of 86.1% was a half percentage point above the level in 4Q17 and 3.7 percentage points above its level in the first quarter of 2017.

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

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