Post-G7 Market Reaction Suppressed ahead of Tomorrow’s Kim-Trump Meeting and Several Key Central Bank Policy Reviews Later this Week

June 11, 2018

The annual summit of Group of Seven leaders over the weekend went poorly (see my review), but share prices mostly rose today in Asia and Europe. Stocks advanced 0.8% in South Korea, 0.5% in Japan, 0.4% in New Zealand, 0.3% in Hong Kong, 0.2% in Singapore, and 0.1% in India but slipped 0.5% in China and 0.1% in Taiwan. The Australian and Indonesian markets were closed for holiday. Equities in Europe have rallied 1.0% in Switzerland, 0.9% in Great Britain, 0.8% in Spain, 0.4% in Germany, 2.2% in Italy, and 0.3% in France.

Heavy criticism by U.S. President Trump of G7 host Canada and threats to impose higher tariffs against America’s northern neighbor depressed the loonie by 0.6% against the greenback. The dollar also advanced by a sharp 0.7% against the currency of its southern neighbor, but other key dollar pairs moved much less. The dollar is unchanged versus the kiwi and yuan, up 0.4% relative to the yen, 0.3% vis-a-vis sterling and 0.1% against the Swiss franc but down 0.2% versus the euro and Australian dollar.

There’s been further convergence of intra-EU 10-year sovereign debt yields. Those in Italy and Greece decreased by 21 and 13 basis points, while those in France, Germany and The Netherlands moved up 7, 3, and 2 basis points. A 2-basis point rise of the 10-year Treasury yield is also indicated, while its Japanese counterpart is unchanged.

West Texas Intermediate crude oil fell 1.2% and is now below $65 per barrel. Comex gold softened 0.3%.

Chinese consumer price data for May — a monthly 0.2% dip and a 12-month 1.8% rate of rise — were identical to April results. On-year CPI inflation had peaked earlier this year at 2.9%, but 1.8% matches last December’s pace. Producer price inflation accelerated to a 4-month high of 4.1%.

Japanese core private domestic machinery orders shot up 10.1% in April and was accompanied by out-sized but expected sharp on-month increases in export orders (10%) and public sector orders (6.2%). The jump in domestic private machinery orders was concentrated in manufacturing; orders for non-manufactured goods only edged 0.4% higher.

On-year growth of 3.2% in Japanese M2 money in May matched the advances in April and the first quarter. But a 14.9% on-year rise of Japanese machine tool orders in May was the smallest this year and down from 48.3% last December.

Poor British data weighed on sterling. The U.K. goods and services trade deficit in April of GBP 5.28 billion was a bit more than 2 billion pounds wider than April’s shortfall, as the merchandise trade deficit soared to GBP 14.03 billion. U.K. industrial production in April had been forecast to show scant change but instead recorded a 0.8% monthly drop, trimming the 12-month increase to 1.8% from 2.9% posted in March.

Italian industrial production sank 1.2% in April, nearly halving its on-year increase to 1.9%.

French business sentiment in both manufacturing and service sectors softened further in May, but Bank of France officials, who compile the data, stuck to their forecast that real GDP this quarter is likely to rise 0.3%.

Ireland’s construction purchasing managers index rose 1.1 points in May to a one-year high of 61.8.

In the year to May, consumer prices rose 2.2% in the Czech Republic and 2.3% in Norway. Norwegian producer price inflation accelerated further into double digits, reaching 14.5%.

A 2.0% quarterly increase in Turkish GDP in 1Q resulted in another overheated 7.4% on-year increase. While personal consumption and business investment recorded on-year advances of 11% and 9.7%, net exports exerted a significant drag as imports jumped 15.6% and exports only edged up 0.5%.

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

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