Euro, Sterling and Sovereign Debt Yields Down but Stocks and Oil Strengthen

June 27, 2018

A signal of a less provocative U.S. stance against China on trade lifted share prices today in Europe and North America. Asian equities had earlier fallen further.

The Dow is up a tad more than 1.0%, and stocks have risen by 1.5% in France and Germany, 1.2% in Italy, and 1.2% in Great Britain. Japan’s Nikkei, in contrast, fell 0.3%, and share prices tumbled 2.6% in Hong Kong, 1.1% in China, and 0.8% in Singapore and India.

Ten-year sovereign debt yields are down today by ten basis points in Italy, 8 bps in Greece, 6 bps in the U.K., 5 bps in Spain, 3 bps in the U.S., 2 bps in Canada and a single basis pint in Germany.

The dollar has advanced 0.6% against sterling and 0.4% versus the euro. Those currencies have been depressed by domestic political tensions over  immigration. The dollar also rose 0.4% versus the Swiss franc, 0.6% relative to the kiwi, and 0.3% vis-a-vis the yen.

Among commodities, WTI oil snapped 2.5% higher to a 1-month high of $72.32 per barrel, while gold is 0.2% softer at $1,257.70 per ounce.

M1 spearheaded slightly faster Euroland M3 money growth in May, but private lending growth remained marginally below the 3% threshold.

In June, consumer confidence weakened in France but rebounded in Italy. Italian manufacturing sentiment slipped. In the year to May, Italian producer prices climbed 2.4%, while Irish retail sales rose 4.3%.

Britain’s distributive trades survey revealed a sharp improvement in June to the best reading so far in 2018. A separate British data release, Nationwide’s monthly house price measure, indicated a lower on-year increase of 2.0% in June, which was the weakest on-year rise in the first half of 2018.

But the Swiss ZEW expectations index showed weaker investor sentiment in June.

Austria’s manufacturing purchasing managers index fell 0.7 points this month to the lowest reading since December 2016.

It came as little surprise that the Czech National Bank’s 2-week repo rate has been increased by 25 basis points to 1.0%. This was the fourth hike of the cycle, following similar increases  implemented last February, November, and August. In a released statement, officials cited the koruna’s failure to appreciate as much as assumed and upgraded their assessment of risks surrounding inflation. The rate hike was engineered in spite of weaker-than-forecast growth last quarter. In conjunction with the repo rate hike, officials authorized a 50-basis point rise of the Lombard rate to 2.0% but left their discount rate unchanged at 0.05%.

Business sentiment in New Zealand dropped to a 7-month low in June. New Zealand’s trade surplus widened somewhat in May to NZD 294 million.

Chinese corporate profits remained dynamic in May, postings a 21.1% on-year increase in May after a 21.9% rise in April. Growth in corporate profits, by comparison, had been lower than 15% in the first quarter of 2018. China’s index of leading economic indicators jumped 2.1% in May.

U.S. durable goods orders fell 0.6% last month but were 10% greater than in May 2017. Core non-defense, ex-aircraft orders dipped 0.2% but exceeded the year-earlier level by 6.6%.

U.S. pending home sales fell 0.5% on month and 2.2% on year in May, and U.S. mortgage applications dropped 4.9% last week, reversing the prior week’s increase. The preliminary advance trade balance estimate for May shows a monthly $2.7 billion drop of the deficit to $64.8 billion, and the Richmond Fed manufacturing index improved 4 points to a reading of 20 this month.

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


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