Third Quarter Begins with Dramatic Dollar Appreciation and Stock Market Losses

July 2, 2018

The dollar strengthened 1.1% versus the peso and kiwi, 0.8% relative to the yuan and Australian dollar, 0.7% against the euro and sterling, 0.6% vis-a-vis the Swiss franc, 0.4% against the loonie but just 0.1% versus the yen.

Share prices slumped 2.5% in China, 2.4% in South Korea, and 2.2% in Japan as well as 0.9% in both Indonesia and Singapore. Share prices are down so far in Europe by 1.2% in Greece, 1.0% in the U.K., 0.8% in Italy and France, 0.7% in Switzerland and 0.4% in Germany. Financials led a 0.5% drop in the DOW at the open.

Both gold and oil prices have dropped 0.5%.

10-year sovereign debt yields have been comparatively stable, with 1-basis point declines in the U.S. and Japan, a 2-bps dip in British gilts, but a 1-bp uptick in German bunds.

June manufacturing purchasing managers survey results generally highlight a widening divergence between the U.S. and Europe, accelerating inflation around the world, tangible evidence that trade war fears are adversely impacting economic conditions and business sentiment.

Euroland’s PMI index sank a full point to an 18-month low of 54.9. The German, Austrian, French and Dutch surveys indicated the weakest expansions in 18, 18, 16 and 9 months. Business sentiment worsened to a 31-month low in the common currency area.

Factory PMI readings in Asia rose in Japan to a 2-month high of 53.0, in India to a 6-month high of 53.1, in South Korea to a 4-month high but still sub-neutral 49.8, in Vietnam to an 87-month high of 55.7, and in Taiwan to a 2-month high of 54.5. But there were lower PMI scores last month than in May for China of only 51.0, Indonesia of 50.3, the Philippines of 52.9, Thailand of 50.2, and Singapore of 52.5.

Australia’s two manufacturing PMI compilations sent conflicting signals, with the CBA index rising 2.8 points to a 4-month high of 55.0 but the AIG PMI dropping 0.1 to a 7-month low of 57.4.

Poland’s manufacturing PMI swung from a 9-month low of 53.3 in May to a 5-month high in June of 54.2. Russia’s manufacturing PMI posted consecutive sub-50 readings for the first time since May 2016. Readings under 50 imply a contraction of factory activity. The Czech PMI rose 0.3 to a 2-month high of 56.8.

Britain’s PMI ticked 0.1 higher to a 3-month high of 54.4 in June, but the second-quarter average was the lowest in six quarters. The Swedish PMI worsened to a 22-month low of 54.2, while the Swiss PMI fell 0.8 to a 3-month low of 61.6.

For.  the United States, the Institute of Supply Management’s manufacturing purchasing managers index of 60.2 was 1.5 points higher in June than May’s reading. It was also at a 4-month high and above the 12-month average score of 59.0. But IHS’s U.S. PMI fell a full point to a 4-month low of 55.4.

The Bank of Japan published results of its second quarter corporate survey, known as the Tankan. It showed a weakening of business sentiment among large and small manufacturers and small non-manufacturers but a one-point improvement in the sentiment index for large non-manufacturers. Even in that case, retailers reported worse conditions. Sentiment has been hurt by trade war fears and a strong yen. Yet, first increased their investment plans for this fiscal year quite substantially.

Euroland’s unemployment rate stayed unchanged at 8.4% in May. Such compares to 9.2% a year earlier.

Japanese motor vehicle sales recorded their largest on-year decline of the first half of 2018 during June, a drop of 7.9%. That followed a 0.6% on-year downtick in May.

Swiss retail sales recorded a monthly volume decline of 1.3% in May and a dip of 0.1% from May 2017.

U.S. construction spending rose 0.4% in May. The increase between February and May also was 0.4%.

Indonesian CPI inflation of 3.12% last month (2.7% core) was little changed from the pace in May.

Polish CPI inflation climbed to 1.9% in June from 1.7% in May.

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


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