Big Rise in Sovereign Debt Yields Ahead of BOJ, FOMC, and BOE Policy Reviews Later This Week

July 30, 2018

Ten-year sovereign debt yields climbed so far today by 7 basis points in the U.K., 5 bps in Germany, France, Italy and Spain, and 3 bps in the United States.

Share prices fell in the Pacific Rim by 0.7% in Japan, 0.8% in New Zealand, 0.5% in Hong Kong and Singapore, and 0.4% in Taiwan and Australia. Investors are guarding against the possibility that the Bank of Japan Board, meeting today and tomorrow, may modify their guidance regarding the 10-year JGB yields. The central bank has been observing a target of around zero percent for over a year. To quell speculation that that goal will be loosened, the BOJ bought bonds, but the yield of 0.09% remains well above zero.

The Federal Reserve also has a 2-day meeting starting tomorrow. President Trump has criticized the Fed for being two quick to raise rates, but after last week’s strong U.S. GDP report, it’s doubtful that anything will be included in the FOMC statement to suggest that 3 increases this year are more likely than four moves. No press conference is scheduled, and a rate hike this week is not anticipated.

The Bank of England, on the other hand, could lift rates on Thursday, having signaled after the previous meeting that the timing of a move is more likely to be sooner than later.

Stocks in Europe are down 0.3% in Germany and 0.2% in Spain and Italy but up 0.1% in the U.K.

There’s been an outsized 2.4% in today’s price of West Texas Intermediate crude oil, which is again trading above $70.00 per barrel. Gold edged 0.1% lower.

The dollar has fallen 0.4% against the euro, loonie, Swiss franc and kiwi. The greenback is unchanged relative to the yen but down 0.2% versus sterling and 0.5% vis-a-vis the Mexican peso.

Although up 0.9% on month, U.S. pending home sales recorded another on-year decline in June, this time of 2.5%.

German CPI inflation unexpectedly edged down 0.1 percentage point to 2.0% in July according to the preliminary estimate. Lower food costs were the cause.

Switzerland’s KOF index of leading economic indicators slipped 0.6 points to a 2-month low of 101.1 in July and was 10.3 points below its end-2017 level.

Economic sentiment in the euro area edged 0.2 points lower to an 11-month low of 112.1. Such crested last December at 115.2 but has been depressed by trade war fears and softer reported hard data. Industrial sector confidence also hit an 11-month low, and the service sector was at a 10-month low. Retail and construction recorded 3-month lows.

Japanese retail sales rebounded 1.5% in June following a 1.7% drop in May. Sales in year-on-year terms posted their largest increase (1.8%) since last December.

Adjusted British M4 growth of 3.4% last quarter was the same pace as in March-May.

Belgian GDP expanded 0.3% on quarter in 2Q18, same as in the first quarter, but on-year growth slowed further to a nine-quarter low of 1.3%.

Swedish GDP grew 1.0% in the second quarter, led by consumer spending, net foreign demand and government expenditures. That was the fastest on-quarter growth in a year and kept on-year growth at 3.3%.

In the year to June, Portuguese retail sales rose 3.3%, but industrial production in that euro area member fell by 0.9%. Portuguese consumer sentiment also declined in June.

Greek and Austrian PPI inflation accelerated in June to 8.2% and 3.0%, respectively.

South African M3 money growth and private credit expansion in June of 5.77% and 5.68%, respectively, constituted 2- and 3-month highs.

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

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