Dollar, U.S. Stocks, and Treasury Yields Little Changed After Strong U.S. GDP Report

July 27, 2018

U.S. GDP expanded 4.1% last quarter at a seasonally adjusted annualized rate. That was the fastest quarterly pace since the third quarter of 2014, but analysts had anticipated such a figure. Personal consumption, non-residential investment and government spending climbed 4.0%, 7.3% and 2.1%, respectively. Net foreign demand augmented the growth rate by 1.1 percentage points but was offset by an almost equal impact from the change in inventories. Real GDP was 2.8% above the year-earlier level. The PCE price deflator recorded a smaller quarter-on-quarter increase than in 1Q but a greater 2.2% on-year advance. The core PCE price deflator accelerated to a 1.9% on-year increase. The inflation target is close at hand, and growth exceeds potential. There’s nothing here to slow Fed rate normalization, but a change is not expected at next week’s FOMC meeting.

The Reuters/U. Michigan index of U.S. consumer confidence in July was revised upward from a preliminary estimate of 97.1 to 97.9. That follows 98.2 in June and, although at a 6-month low, represents a fairly robust mood.

The dollar is unchanged against the euro and sterling. It has dipped 0.2% relative to the yen and 0.1% versus the kiwi and loonie, but it has also appreciated 0.4% vis-a-vis the yuan and 0.1% against the Swiss franc.

Stocks rose 0.9% in Australia, 0.7% in Indonesia and New Zealand, 1.0% in India, and 0.6% in Taiwan. European equities are so far up 0.9% in Spain, 0.7% in the U.K., 0.5% in France and 0.4% in Germany, but U.S. stocks are narrowly mixed.

Ten-year sovereign debt yields edged up a basis point in Japan, Germany, and the U.K. but down a basis point in the U.S..

WTI oil and Comex gold slipped 0.2% and 0.1%.

Officials at The Bank of Russia left the key one-week repo rate unchanged at 7.5%. It’s last changes were a pair of 25-basis point cuts in February and March, and before that reductions were made of 50 bps in September 2017, 25 bps in October, and 50 bps in December. Inflation is presently low at 2.3% but will be lifted by a planned VAT hike, and officials want to know better the effect that tax hike may have on inflation expectations before acting again. They expect inflation to rise above 4.0% next year and not return to that level until early 2020.

Austria is always the first euro area economy with a released manufacturing PMI each month. Such rose 0.2 points to a 2-month high of 56.8 in July but signaled considerably faster growth at the start of 2018 when the reading was at 61.3.

Chinese corporate profits do not show any impairment from trade war threats. Profits in June were 20% greater than a year earlier after on-year increases of 21.1% in May and 21.9% in April. The first-half increase was 17.2%.

In Japan, Tokyo’s consumer price inflation accelerated in July to 0.9% overall, 0.8% excluding fresh food, and 0.5% excluding both fresh food and energy items.

Australian PPI inflation decelerated to 1.5% in the second quarter of 2017 from 1.7% in each of the prior two quarters. Singapore’s PPI was 7.8% higher in June than a year earlier.

French GDP growth of 0.2% on quarter in 2Q was a shade less than forecast and matched the first-quarter pace, down from 0.7% per quarter in the second half of 2017.

German import price inflation accelerated further to 4.8% in June from 3.2% in May and 0.6% in April. Energy jumped 2.0% on month and a whopping 37.6% on year, while non-energy import price inflation stayed subdued at 1.2%. Export prices were 1.8% higher than in June 2017.

Italian PPI inflation rose to 2.9% last month from 2.4% in May.

Finnish consumer sentiment fell in July to a 15-month low.

Swedish retail sales slumped 1.8% last month and was just 0.2% greater than a year earlier. Spanish retail sales likewise were just 0.1% above their year-earlier level, but a 7.0% on-year rise in Irish retail sales, however, was the greatest increase in the first half of 2018.

The Mexican trade balance swung to a larger-than-expected $0.897 billion deficit last month from a surplus of $0.810 billion in June 2017.

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

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