Sterling Slide Extended

August 6, 2018

The pound ended last week on a weak note after Bank of England Governor Carney flagged “an uncomfortably high” risk that Britain leaves the EU without any negotiated deal. That message was reinforced over the weekend by Trade Minister Fox’s perception of 60-40 odds in favor of no deal, and sterling slipped a bit below the recent low of July 19th to touch $1.2954.

Aside from the 0.5% daily advance against sterling, the dollar has risen 0.3% versus the Swiss franc and yuan, 0.2% vis-a-vis the yen, euro, loonie and peso, and 0.1% relative to the Australian and New Zealand dollars so far today. JP Morgan CEO Dimon is warning of significantly higher Treasury yields. The 10-year is up a basis point this morning.

In stock market action, equities closed down 1.3% in China and 0.1% in Japan but up 1.6% in Indonesia, 0.6% in New Zealand and Australia, and 0.4% in India. In Europe, share prices have so far risen 0.7% in Germany, 0.4% in Switzerland and France and 0.1% in the U.K..

Ten-year Japanese JGB and German bund yields are unchanged, while the 10-year British gilt yield edged down a basis point.

West Texas Intermediate crude oil climbed 1.4% to $69.42 per barrel, but Comex gold is 0.4% softer at $1,217.90 per troy ounce.

The threat of global protectionism is already hurting German industrial orders, which sank 4.0% on month in June and thereby posted a second straight 2.2% quarter-over-quarter decline. Orders were in fact 0.8% lower in June than their year-earlier level. Germany’s large trade and current account surpluses have been a particularly favorite object of U.S. President Trump’s scorn. In June, foreign orders swooned 4.7%, and domestic demand for capital goods, a leading indicator of future investment, sank 3.7%.

Germany’s construction purchasing managers index dropped 3.0 points in July to 50.0, the lowest reading since a weather distorted 47.0 last March.

The global services PMI compiled by JP Morgan fell 0.6 points to an 8-month low last month.

The Sentix gauge of investor sentiment toward the euro area economy posted a second straight monthly rise, but the 3-month high of 14.7 for August is still less than half as high as the best reading so far in 2018, which was 32.9 back in January.

The National Bank of Romania left its monetary policy rate unchanged at 2.5% at the Board’s latest review. In the face of upwardly creeping inflation, the rate during the first half of this year (January and May) was twice raised by 25 basis points, thus reversing half of a full percentage point of rate reduction engineered in the first half of 2015.

British new car sales, which had fallen 6.5% on year in the first half of 2018, were 1.2% greater in July than a year earlier.

June on-year growth in Czech industrial production of 3.4% and retail sales of 2.0% respectively beat and fell short of analyst expectations.

Indonesian real GDP, which contracted in the final quarter of 2017 and first quarter of 2018, advanced 4.21% in 2Q. This resulted in on-year growth of 5.27%, up from 5.01% in the prior four quarters to 2Q17 and the largest on-year pace since the final quarter of 2013. But Indonesian consumer confidence fell in July to a 3-month low after posting its best reading of first half in June.

Most Canadian provinces will be observing a holiday this first Monday of August, although it goes by different names across the country including Simcoe Day in Ontario where Toronto is.

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

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