Facebook Plunges, ECB and OPEC Review Things, and a U.S.-EU Trade Accord Is More Truce than Agreement

July 26, 2018

The ballooning credibility gap of Facebook finally hit the company’s share price, which has tumbled 19.4% so far today from $217.50 to $178.28. Alphabet, the parent of Google, is down 4.3%, but the DOW is up 0.5%.

The ECB Governing Council reviewed its policy stance and decided not to change such. The ECB interest rate structure remain zero for the refinancing rate, minus 0.40% for the deposit rate, and +0.25% for the Marginal Lending Facility. The bond purchase program’s phase out path remains at a monthly pace of EUR 30 billion this quarter and EUR 15 billion in 4Q, no new purchases thereafter but continuing reinvestment of maturing principal for an extended period. Interest rates will remain ultra-low at least through the summer of 2019. ECB President Draghi was upbeat about the likelihood of broad growth and progress of inflation toward the central bank’s target but stressed that significant monetary stimulus must continue to make that happen. He was hopeful that the U.S. and EU trade talks had yielded a vague accord but said it’s premature to say what the economic impact will be.

West Texas Intermediate crude oil is marking time a bit below $70 per barrel, as oil ministers meet in Vienna.

Wednesday’s U.S.-EU trade agreement is notable for its lack of specifics other than that the U.S. isn’t imposing tariffs on autos just yet, negotiations will continue, and both sides pledge not to levy new tariffs on the other while working out details. The evolution of this issue follows a familiar Trumpian path: verbal threat, then announcement of a vague and confusing truce and declaration of victory.

The dollar strengthened today by 1.2% against the Australian dollar, 0.8% relative to the kiwi, 0.6% versus the euro, 0.5% vis-a-vis sterling, 0.4% against the loonie, 0.2% versus the Swiss franc and yen, and 0.1% relative to the peso.

Share prices fell in Asia by 0.7% in China, 0.6% in Hong Kong, 0.1% in Japan, but stock markets are up in Europe by 1.7% in Germany, 1.1% in Switzerland, 1.3% in Italy, 0.7% in Spain, and 0.6% in France. The British Ftse is flat.

Ten-year German and British sovereign debt yields are unchanged. The Japanese JGB rose 2 basis points on continuing speculation that a shift in BOJ quantitative stimulus may soon occur, and the 10-year Treasury yield fell back 3 basis points.

Comex gold slipped 0.3%.

U.S. durable goods orders rebounded from back-to-back declines in April and May but with a smaller-than-forecast 1.0% increase. New jobless insurance claims last week were 9K greater than in the week before, but the 4-week average of 218K per week was still a tad less than in the previous four weeks. According to “advance” data, the U.S. goods and services trade deficit widened to $68.3 billion in June from $64.8 billion in May. All the sound and fury of tariff threats aren’t making a difference in the bottom line.

Germany, France, Italy, and Sweden reported consumer confidence data.

  • German consumer sentiment according to the GFK measure slipped 0.1 point unexpectedly to a new low for 2018 of 10.6 in August.
  • French consumer confidence had been forecast to tick a point higher but instead remained unchanged in July at 97, 3 points below the level recorded recently in March and April.
  • Italian consumer confidence improved 0.1 point to a 3-month high of 116.3 in July. Business sentiment among manufacturers was also reported to have stayed unchanged this month.
  • Swedish consumer confidence climbed 1.7 points to a 3-month high in July of 99.8.

Swedish seasonally adjusted unemployment held level at 6.2% in June but was 0.2 percentage points lower on an unadjusted basis at 7.2% than its year-earlier level. Icelandic unemployment fell to a 3-month low of 2.3% in May, while Mexico’s jobless rate in June of 3.4% was 0.2 percentage points higher than in May. Norway registered 3.8% unemployment in May, and Spain’s jobless rate of 15.28% last quarter was down from 16.74% in 1Q and 18.75% in the spring quarter of 2017.

Japanese corporate service prices rose 0.2% in June and accelerated to a 12-month rate of 1.2% from 1.0% in theĀ  previous two months and 0.7% in 2017 as a whole.

South Korean real GDP growth slowed to a quarterly 0.7% in 2Q18, but the year-on-year advance of 2.9% was above 2.8% posted in each of the previous two quarters as well as in the second quarter of 2017.

South African producer price inflation accelerated to a 17-month high of 5.9% in June from 4.6% in May and 3.7% in March.

Brazil recorded a $3.59 billion current account deficit in the first half of 2018 versus a surplus of $0.58 billion in the first half of 2017.

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

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