Thursday Summary Notes

September 6, 2018

Several U.S. data reports were released.

  • Productivity, which rose 1.1% in 2017, leaped 2.9% in the second quarter of 2018 and 1.3% from a year earlier. Unit labor costs fell 1.0% and were 1.9% higher than in 2Q17.
  • Jobless insurance claims fell by 10K to 203K last week.
  • ADP reported a lower-than-expected 163K estimated rise of private sector jobs in August.
  • The ISM’s non-manufacturing purchasing managers index rebounded 2.8 points to a 2-month high in August.
  • Factory orders fell 0.8% in July, but their average on-year growth in January-July was buoyant at 8.3%.

Central banks in Sweden and Serbia left key interest rates unchanged as expected at -0.50% and 3.0%, respectively. The statements released by their executive boards both stressed a need for caution in conduction policy and flagged international risk factors such as volatile commodity and financial markets. Higher inflation mostly reflects energy, and core inflation is expected to stay moderate. Sweden’s last rate change was 15-basis point cut in February 2016. Officials at the National Bank of Serbia reduced their key interest rate by 25 basis points each in March and April of this year.

Board members at the National Bank of Ukraine, in contrast, tightened monetary policy, raising their key interest rate by 50 basis points to 18.0%. This was the sixth increase since last October, and those six increases total 550 basis points. Although this progressively administered restraint has depressed CPI inflation to 8.9%, just 0.4 percentage points above the 4.5-8.5% target, officials in a released statement declare that since July’s Board monetary policy decision, there has been a significant increase in external risks, which could prevent inflation from returning to its target.” A key risk is currency depreciation due to capital outflows in many emerging market economies. Less benign commodity conditions and the possibility of large-scale trade conflicts are two others.

German industrial orders fell 0.9% in July following slides of 3.9% in June, 1.6% in the second quarter and 2.2% in the first quarter. The weakest link recently has been foreign demand, which dropped by 3.4% in July and 4.8% in June. German trade has been a principal object of U.S. President Trump’s contentious trade policies.

Swiss GDP rose 0.7% last quarter, down from 1.0% in the first quarter, but on-year Swiss growth accelerated a half percentage point to 3.4%.

Although 20% narrower than in June, Australia’s trade surplus in July of A$ 1.551 was more than three times greater than its year-earlier level.

South Africa posted a ZAR 164 billion current account deficit in the second quarter, 25% narrower than in 1Q but still hefty at 3.3% of GDP. News of the reduction gave the rand a lift.

Indonesian consumer confidence fell to a 5-month low in August.

Brazilian CPI inflation last month of 4.2% was less than in July.

Germany’s construction purchasing managers index increased 0.5 points to a 2-month high of 51.5. The year-to-date average reading has been 52.4.

The dollar mostly declined, with losses of 2.2% against the Brazilian real, 0.6% against the ruble, peso and Swiss franc, 0.5% versus the yen, 0.3% against the Turkish lira and Canadian dollar, and 0.2% relative to sterling.

The Dow closed little changed, but technology stocks were on the back foot. The British Ftse, German Dax and Japanese Nikkei lost 0.9%, 0.7%, and 0.4%.

Ten-year sovereign debt yields fell 3 basis points in the U.S., Germany, and U.K., 2 bps in France and a basis point in Canada and Switzerland.

WTI oil dropped 1.2%, while gold firmed 0.3%.

On the U.S. political front, today’s obsession was an anonymous Op-Ed piece from a “senior official in the Trump administration” published in the New York Times. Both it and the Bob Woodward book paint a very scary picture of how policy is being made in Washington.

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



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