Trade War Concerns and Immigration Tensions Rattle Markets Further

June 18, 2018

Share prices fell 1.2% in South Korea and 1.0% in Singapore. In Europe, stocks have thus far dropped 1.4% in Germany, 1.2% in France, 1.1% in Switzerland, 1.0% in Spain, 0.9% in Italy and 0.4% in the U.K.. Markets were closed today in China, Taiwan, and Hong Kong for the Dragon Boat Festival and remained shut in Indonesia fro Eid UI Fitr.

Ten-year sovereign debt yields dipped 2 basis points in the U.K., Spain and Portugal but are unchanged in Germany and Japan. A one-basis point decline is indicated in U.S. futures.

West Texas Intermediate crude oil sank 0.5% to $64.71 per barrel amid reports that OPEC is considering a production increase of more than a half million barrels per day.

The dollar is broadly lower, with declines so far this Monday of 0.8% against the loonie, 0.3% relative to the Swiss franc, 0.2% versus the yen and Australian dollar, and 0.1% vis-a-vis the euro, kiwi and peso. One exception to the trend of dollar softness involves sterling, which has slipped 0.2%. Against the softer dollar, gold went up 0.4%.

Japan posted a JPY 578 billion customs trade deficit in May, more than twice the expected size. Imports were 14% higher than a year earlier, compared to an 8.1% advance in exports. The seasonally adjusted trade balance swung from a surplus in April of JPY 454 billion to a deficit of JPY 297 billion.

Further evidence emerged of a softer British housing market. The Rightmove house price index went up 0.4% in May, half asĀ  much as April’s monthly increase, and there was an on-year increase of less than 2.0% for the third month in a row.

New Zealand’s Performance of Services index rose 0.9 points to a 2-month high of 57.3, which also was the second best reading in 11 months.

There’s been a changing of the guard in the second most important Federal Reserve position. John Williams, who’d been president of the San Francisco Federal Reserve Bank, becomes president of the New York Fed, the only district presidency with permanent, instead of rotational, voting rights on the FOMC. In farewell remarks, outgoing NY Fed President Dudley express concern about changes in U.S. trade and immigration policies and predicted a need to raise the federal funds target into above-neutral territory in light of the very low unemployment rate.

ECB President Draghi delivers an important speech later today but is not expected to reveal much beyond the decisions announced at his press conference last Thursday.

Italy’s April trade surplus narrowed to a 3-month low of EUR 2.983 billion in April, some 18% smaller than the April 2017 surplus.

South Korea’s May trade surplus of $6.732 billion was the biggest since last November.

Singapore recorded a trade surplus in May of SGD 5.431 billion, down from SGD 6.006 billion in April.

In Turkey, an over-heated economy with double digit inflation where presidential and parliamentary elections are scheduled for June 24, retail sales grew 0.5% in April and 8.0% over the last 12 months.

In the year to May, Icelandic consumer prices were unchanged, and Czech producer prices rose 1.8%. Both reports represented acceleration from April on-year comparisons. In contrast, Polish wage inflation slowed from 7.8% in April to 7.0% in May.

On the geopolitical front, China is predictably matching Trump’s imposition of $50 billion worth of tariffs against imports of Chinese goods. The separation of immigrating Latin American children from their parents is generating back-and-forth accusations of blame. Details of the the Trump-Kim meeting remains a mystery.

The U.S. National Association of Home Builders index will be reported later today.

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

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