Lack of U.S. Leadership on This Independence Day Depresses Market Action

July 4, 2018

The dollar is unchanged against the yen, kiwi and loonie, up 0.2% relative to the euro and 0.1% versus the Swiss franc and Aussie dollar, and down by 0.1% vis-a-vis sterling and the yuan.

Stocks in Europe are down 0.4% in Germany and Italy, 0.3% in the U.K., and 0.1% in France. Asia saw some big equity declines of 1.9% in Hong Kong and 1.0% in China but otherwise just a 0.3% drop in Japan’s Nikkei.

Ten-year sovereign debt yields climbed 4 basis points in the U.K. and by one basis point in Japan and Germany.

Gold is 0.3% firmer. WTI oil settled back 0.3% to just under $74 per barrel.

The National Bank of Romania left monetary policy settings unchanged including the key 2.50% policy rate, which had been raised earlier this year by 25 basis points in both January and May. A press release from the central bank Board includes the following assessment of inflation and other risks: ”

The latest assessments reconfirm the outlook for the annual inflation rate to level off above the variation band of the target over the next months, followed by its decline near the upper bound of the variation band at the end of this year, in line with the May 2018 medium-term forecast.

The uncertainties and risks surrounding the medium-term inflation outlook are significant. They stem from labour market conditions, developments in administered prices and in oil prices, as well as from international financial market volatility. Also relevant are the economic growth pace in the euro area and globally and the danger of escalating trade protectionism.

In other central bank news,

  • Bank of Japan Board member Harada defended the need for continuing quantitative stimulus in Japan and warned of damage to financial institutions if rates are raised too quickly there.
  • Minutes from the June FOMC meeting, which raised the federal funds target, get released tomorrow.

Australian retail sales climbed 0.4% in May, lifting the on-year pace to 2.8%, highest so far in 2018. Australia’s trade surplus rebounded to A$ 827 million in May from A$ 472 million in April but was still below March’s surplus of A$ 1.14 billion. The AIG Performance of Australian Services index shot up 4 points to a reading of 63.0 in June, indicating the fasting activity growth this year, but a separate PMI compiled by Commonwealth Bank of Australia fell to a 26-month low of 52.7.

Euroland’s services and composite purchasing manager indices, respectively printing at 55.2 and 54.9 in June, were both at 4-month highs, suggesting GDP growth last quarter around 0.5%. Input price inflation reached an 86-month high. While composite PMI scores for Ireland, Italy, Germany and France improved to respective 5-, 4-, 3- and 2-month highs, Spain’s composite PMI sank to a 17-month low.

The British service-sector PMI increased 1.1 points to a greater-than-expected reading of 55.1, best in eight months on a 13-month high in the orders sub-component. Britain’s composite PMI reached a 4-month high. The data nonetheless include unsettling elements reflecting intensifying input price inflation and mounting capacity strains.

Japanese composite and service-sector PMIs in June recovered to 2-month highs but still signaled weak growth with scores of 51.4 and 52.1.

China’s composite and service-sector PMI scores of 53.9 and 53.0 rose to 4-month highs in June.

India’s composite PMI, 53.3, climbed to a 20-month high, and its services PMI was the best score in a year.

Russia presented a different trend, with composite and service PMIs each at 25-month lows, albeit still above 50 and so indicating positive growth.

Standard Bank’s South African private-sector purchasing managers index recorded a fourth straight monthly reading of 50 or more, a 3-month high of 50.9.

Singapore’s private PMI dropped back from May’s record high to a 2-month low of 56.0, still comparatively robust.

The Lebanese private PMI dropped 0.4 points further below the 50 level to an 8-month low of 46.0.

Sweden’s service-sector purchasing managers index rebounded 2.9 points to a 2-month high of 59.8.

Brazilian composite and service-sector PMI scores of 47.0 each represented 16- and 7-month lows. Brazilian industrial production in May was 6.6% lower than a year earlier, which was a smaller on-year decline than analysts were anticipating.

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

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