Share Prices Falter… British and Czech Central Bank Rates Hiked

August 2, 2018

The tone of tariff threats between the United States and China has intensified.

The Turkish lira tumbled to an all-time low beyond the 5 per dollar level yesterday in response to the imposition of U.S. sanctions against the Turkish Minister of Justice. The lira had already been under siege as a result of accelerating inflation and the central bank’s slow response to that development.

The Bank of England’s Monetary Policy Committee voted unanimously to raise its Bank Rate a second time by 25 basis points to 0.75%. An initial increase was engineered last November. 0.75% is the highest level since March 2009. The move had been telegraphed rhetorically. More increases are to come, as economic growth is projected to slightly exceed its potential, causing excess demand and firmer unit labor costs.

The Czech National Bank also announced a 25-basis point hike of its two-week repo rate, which now becomes 1.25%. The rate earlier had been increased by 20 basis points in August 2017 and 25 bps each in November 2017, February 2018, and June 2018. Czech growth has been ample, the koruna has weakened, and domestic price pressure has picked up.

The dollar firmed overnight by 0.7% vis-a-vis the Mexican peso, 0.5% against the Australian and New Zealand dollars, 0.3% relative to the euro, 0.2% versus the loonie and yuan, and 0.1% against sterling and the Swiss franc. Alternatively, the dollar is 0.3% weaker against the Japanese yen.

Share prices cratered today by 2.2% in Hong Kong, 2.0% in China, 1.6% in South Korea, 1.5% in Taiwan, 1.0% in Japan, and 1.3% in Singapore. In European trading, losses of at least 1.0% have been recorded in the U.K., Germany, Greece, Italy, and Spain as well.

Ten-year sovereign debt yields soared almost a percentage point in Turkey and are up 7 basis points in Great Britain, but the 10-year U.S. Treasury and German bund yields softened by 3 and 2 basis points.

Commodity prices fell 0.9% in the case of oil and 0.3% for gold.

Swiss retail sales volume rose 0.5% on month and 0.3% on year in June, which is more than analysts were expecting. The Swiss manufacturing purchasing managers index, which wasn’t announced Wednesday due to the National Holiday in Switzerland, rose 0.3 points to a 2-month high of 61.9 in July. However, Swiss consumer confidence fell nine points in the third quarter to a reading of -7 from +2 in the second quarter and +5 in the first quarter.

Australia’s A$ 1.873 billion trade surplus in June was the widest surplus since May 2017. Nonetheless, a first-half surplus of A$ 6.549 billion was 35.6% narrower than a year earlier.

The global manufacturing purchasing managers index in July fell to a 14-month low according the J.P. Morgan compilation.

But Britain’s construction PMI jumped 2.7 points to 55.8 last month, a 14-month high. Such was as weak as 47.0 last March and averaged 49.5 in the first quarter of 2018.

Producer price inflation in the euro area accelerated to 3.6% in June from 3.0% in May and 1.9% in April due mostly to the energy component, whose on-year increase nearly tripled to 9.5% from 3.6% two months earliere.

Growth in Japan’s monetary base continued to slow last month, reaching just 7.0% versus 7.4% in June, 7.8% in the second quarter, 9.4% in 1Q, 17% in 2017 and 25% in 2016. The Bank of Japan, which directly controls the MB, has repeatedly missed target dates for achieving sustained 2% core inflation.

In the year to June, producer prices soared 13.45% in Brazil and rose 6.1% in Romania. Cypriot CPI inflation in July of 2.3% was the same as in June.

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

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