Weak European Data Out but Little Fresh News on the Trade War Front

July 10, 2018

The dollar overnight gained 0.4% against the yen, 0.3% relative to the euro, Swiss franc and yuan, 0.2% versus the kiwi and 0.1% relative to the Australian currencies and the loonie. The Trump Administration has flipped the U.S. political theme from tariffs, which rattled markets last week, to the president’s supreme court justice choice announced yesterday. The dollar also benefited from some weak European data. An exception to the firmer dollar today concerns sterling, which firmed 0.2% after yesterday’s rout, which was triggered by the resignation of several cabinet members in Theresa May’s cabinet in protest against the prime minister’s backing down on a hard Brexit course.

Equities extended yesterday’s broad advance. The DOW on optimism over forthcoming corporate earnings reportsĀ  rose over 100 points (0.4%) in less than 10 minutes in today’s trading. Stocks in Asia climbed 1.4% in Singapore, 1.3% in Indonesia, and 0.7% in Japan. Share prices in Europe have so far gained 1.3% in Greece, 0.5% in France, 0.4% in Germany, 0.3% in Switzerland and Italy and 0.1% in Great Britain.

Ten-year sovereign debt yields are up 5 basis points in the U.K. and 2 bps in Germany. The 10-year U.S. Treasury yield edged a basis point higher, too.

West Texas Intermediate crude oil rose 0.7% to $74.35 per barrel. Comex gold slipped 0.4% on dollar strength.

The German ZEW Institute’s monthly survey of investors’ sentiment about economic conditions and prospects produced weaker-than-anticipated results for July. “Germany’s outlook worsened once more on fears over an escalations of the international trade war with the United States.” The ZEW expectations dropped another 8.6 points to a 71-month low of -24.7, which is also nearly 50 points worse than that measure’s long-term mean of +23.16. The index had been at +20.4 just six months earlier, and the July result was accompanied by a further 8.2-point decrease in the current conditions index to 72.4. Regarding the whole euro area, the ZEW expectations index fell 6.1 points in July to -18.7, representing a 50.5-point deterioration within six months. The current situation for Euroland printed at 36.2 in July, compared to 39.9 in June and 56.1 in May.

Several British indicators were released today. A sole bright note was that the goods and services trade deficit unexpectedly narrowed in May to GBP 2.79 billion from GBP 3.087 billion in April, but that was still bigger than March’s deficit. Moreover, the merchandise trade deficit remained higher than expected at a whopping GBP 12.362 billion in May. In other news, British GDP grew by only 0.3% last quarter according to the first estimate of 2Q based on somewhat less than half of the quarter’s information. That quarterly pace, though up from 0.2% in the first quarter, was low enough to drag down on-year growth to 1.7% from 2.0%, and the quarter included sharp quarterly declines of 0.9% in construction and 0.5% in factory output. The day’s worst piece of British economic news came from industrial production in May, which unexpectedly posted a second straight drop, this time of 0.4% after April’s 1.0% slide, and this slashed the 12-month increase in half to a mere 0.8%. Finally, same-store sales in the U.K. recorded a smaller 1.1% on-year rise in June after posting a 2.8% increase in May.

Back-to-back declines in French industrial production were also experienced, as a 0.2% dip in May followed a 0.5% drop in April, and that swung the 12-month change from the black into the red (-0.9%).

Italian industrial production had dropped 1.3% in April, so a 0.7% rebound in May still left the average level over the three months through May 0.4% below the previous three months’ mean. Likewise, increases of industrial production in May of 0.9% in Finland and 3.2% in Greece failed to fully reverse the prior month declines.

Portugal and Romania reported trade deficits for May.

Several European countries released price data, too, today. Norwegian CPI and PPI inflation accelerated to 2.6% and 20.0% in June. Hungarian CPI inflation rose 0.3 percentage points to 3.1% last month, while Greek CPI inflation of 1.0% was also higher than May’s on-year 0.6%. Danish CPI inflation stayed at 1.1%.

The Bank of France reaffirmed last month’s prediction that French GDP is likely to have expanded 0.3% in the second quarter. The central bank’s indices of economic sentiment improved in June for both manufacturing to a 2-month high and services to a 3-month high, but the construction sector index was unchanged.

Japanese machine tool orders were 11.4% greater in June than a year earlier. That increase was down from 12-month gains of 14.9% in May, 22.0% in April, 28.1% in March, 39.5% in February and 48.8% at the start of 2018. Japanese M2 money grew 3.2% on year in the first half of 2018, down from 4.0% growth recorded in all of 2017.

Chinese consumer prices edged 0.1% lower in June, but the year-on-year increase ticked up to 1.9% after back-to-back 1.8% readings in April and May. PPI inflation accelerated more significantly, climbing to 4.7% last month from 4.1% in May and 3.4% in April.

The SACCI index of South African business confidence again declined in June, reaching 93.7 following a score of 94.0 in May and a 2018 high of 99.7 in January.

The National Australia Bank’s monthly indicators of Australian business confidence and business conditions in June had identical readings of +6 and +15 to those posted in May. First-half highs of +11 and +21 had been recorded in March.

U.S. small business sentiment according to the NFIB remained very buoyant in June with a reading of 107.2, just a little below May’s high for the year of 107.8. Small business confidence has been boosted by tax cuts and lessening regulation. The monthly Labor Dept JOLTS data were also reported today. There was a slight decline in job openings between April and May, but non-farm job hiring and and separations both moved a tad higher.

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

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