Turkish Lira Slumps while Global Equities Perform Better

July 24, 2018

Turkey’s sharp monetary tightening in May and June was unexpectedly not extended further this month, and the lira fell as much as 4% today. Turkish bond prices also fell sharply. Turkey’s 14-year CPI inflation high of 15.4% is still cresting.

In yet another state under authoritarian rule, Hungary’s central bank also left monetary policy unchanged after the latest review. A statement released by the Monetary Council of Magyar Nemzeti Bank reaffirmed, “the inflation target is still expected to be achieved in a sustainable manner from mid-2019, as the temporary, inflation boosting effects of oil price changes fade. In the Council’s assessment, maintaining the base rate and the loose monetary conditions is still necessary to achieve the inflation target in a sustainable manner. The current volatile international environment suggests a more cautious approach.” Hungary’s base rate and overnight collarteralized lending rates have been at 0.90% since a 15-basis point cut in May 2016. The overnight deposit rate was last lowered ten basis points in September 2017 to its current negative 0.15% level.

Technology companies have led a 0.6% rally in U.S. share prices thus far today. Earlier, stocks rose by 1.9% in Hong Kong, 1.6% in China, 0.6% in South Korea and 0.5% in Japan. In Europe, equities so far show daily advances of 1.5% in Germany, 1.3% in France, 0.9% in Italy, and 0.8% in the U.K. and Spain.

10-year U.S. Treasury and British gilt yields firmed a basis point. 10-year Japanese and German sovereign debt yields are steady.

Comex gold and WTI oil show price increases today of 0.2% and 0.4%.

IHS Economics released preliminary July purchasing managers survey results for Japan, Euroland, Germany, France and the United States. These reports are based on about 85% of the information that will determined the final results.

  • Japan’s manufacturing PMI dropped 1.4 points to a 20-month low of 51.6. Findings of accelerating inflation and weaker business confidence were also revealed.
  • Euroland’s composite PMI slid 0.6 points to a 2-month low of 54.3, a result consistent with quarterly GDP growth of about 0.4% at the start of the third quarter. The service-sector PMI declined 0.8 points to a 2-month low of 54.4, undershooting analyst expectations. While the manufacturing PMI recovered 0.2 points to a 2-month high of 55.1, its production subindex remained unchanged from June’s 19-month low.
  • The German composite PMI rose another 0.4 points to a 5-month high despite a marginal dip of services to a 2-month low. However, new business grew more slowly than output, causing the order backlog to firm more slowly as well.
  • The French composite PMI dropped 0.5 points to a 2-month low of 54.5. Manufacturing rose to a 2-month high, but services fell to a 2-month low.
  • The IHS U.S. composite PMI slipped for a second straight month but was merely 0.7 points lower than May’s 56.6 peak, which had signaled the fastest growth since April 2015.

The FHFA index of U.S. housing prices posted the same respective monthly (0.2%) and yearly (6.4%) increase in May that they had in April.

In the U.K., the CBI monthly survey of industrial trends dipped two points to a two month low of +11 in July.

Japan’s index of leading economic indicators in May was not revised. It matches the preliminary 106.9 reading, a 6-month low. The indices of coincident and lagging economic indicators were at 2-month lows.

Japanese department store sales (+3.1%) and supermarket sales (+0.1%) recorded on-year growth in June after posting declines in May.

Australia’s index of leading economic indicators edged 0.1% higher in May. India’s LEI advanced by a strong 0.9% in June.

Czech consumer confidence weakened to a 7-month low in July, and business sentiment in that economy also fell.

Icelandic producer price inflation accelerated to 11.7% in June. So did PPI inflation in South Africa, which printed at 6.2% versus 4.9% the month before.

Monetary officials in Chile are reviewing their policy stance today.

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


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