More Trouble

June 15, 2018

President Trump has approved a 25% tariff on $50 billion of Chinese imports.

The Bank of Japan gave a gloomier assessment of inflation, downgrading its range to 0.5-1.0% from around 1.0% and observing that medium-term and long-term inflation expectations aren’t escaping a deflationary mindset. Policy settings were left unchanged, and an extremely accommodative stance seemingly has no end in sight.

The Argentine peso dived more than 6% on reports that a shakeup at that country’s central bank leadership is being contemplated, and this pulled down other emerging market currencies as well like the Brazilian real, South Korean won and Thai baht.

Equity markets fell today by 1.1% in Singapore, 0.8% in South Korea, and 0.7% in China and Hong Kong but rose 1.3% in Australia, 0.7% in Taiwan, and 0.5% in New Zealand and Japan. European markets have lost 1.1% in Spain, 1.0% in Italy, 0.8% in the U.K., 0.6% in Greece, and 0.4% in Germany.

Ten-year sovereign debt yields fell by 10 basis points in Greece, 9 bps in Italy, 7 bps in Portugal, 5 bps in Spain, and 2 bps in Germany. The 10-year Japanese JGB yield slid a basis points to just 0.02%.

The price of gold is 0.4% lower; that of WTI oil is flat.

Euroland consumer price inflation accelerated to 1.9% in May from an upwardly revised 1.3% in April and 1.4% in May 2017. Core inflation was 0.3 percentage points higher at 1.1%. Energy jumped 2.2% on month and accelerated to an on-year 6.1% pace from 2.6% the month before. Consumer service price inflation accelerated to 1.6% from 1.0%. May inflation was above 2.0% in Germany, France, Spain and Belgium. The ECB yesterday announced that bond buying will end after December but balanced that with guidance that interest rates are unlikely to rise before the summer of 2019, if not later.

Wage inflation also has picked up in the euro area. Total hourly labor costs were 2.0% higher last quarter than a year earlier, up from on-year increases of 1.4% in the final quarter of 2017 and 1.5% in the first quarter of last year.

Euroland’s seasonally adjusted trade surplus narrowed to a 6-month low of EUR 18.1 billion in April as a 1.3% monthly increase of imports eclipsed a 0.3% rise of exports. The January-April surplus, however, was still 9.7% wider than the year-earlier surplus.

German wholesale prices advanced 0.8% last month, doubling the on-year pace to 2.9%. Solid fuel and mineral oil products leaped 5% in price on month.

On-year car sales in the European Union printed at a low 0.8% in May versus a year-to-date advance of 2.4%.

In the 12-months through May, consumer prices increased 1.0% in Italy and Cyprus and 1.9% in Austria, while Danish producer prices rose 3.9%, which is a one-year high.

Italian industrial orders fell 1.3% on month in April, while industrial sales edged just 0.3% higher. Dutch retail sales that month were 16.8% greater than a year earlier, a 7-month high.

The Bank of Russia kept its key interest rate unchanged at 7.25% but warned that inflation risk will be tilted to the upside through the end of 2019 because of a planned VAT tax hike next year. Monetary officials expect CPI inflation of 2.4% recently to picky up to 3.5-4% by late 2018 and 4-4.5% in 2019 before backing down to 4.0% in 2020.

New Zealand’s manufacturing purchasing managers index fell back 4.6 points to a 2-month low of 54.5 in May.

India’s trade deficit widened to $14.6 billion last month.

The New York Empire State manufacturing index unexpectedly improved this month, climbing 4.9 points to an 8-month high of 25.0.

Still ahead: U.S. industrial production, capacity utilization, existing home sales, U. Michigan consumer sentiment index, and Treasury-compiled capital flows.

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


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