Quarter-End Rush of Data, Italian Fiscal Concerns, and U.S. Supreme Court Drama
September 28, 2018
The new populist government of Five Star in Italy passed a stimulative budget, with a deficit equal to 2.4% of GDP and well above what Italy’s Euroland colleagues wanted to see. In response, the country’s 10-year sovereign debt yield leaped 33 basis points to 3.22%, while the comparable Greek sovereign debt yield went up 16 basis points. These increases contrasted with declines of 7 basis points in Germany, 5 bps in France and Great Britain, and 3 basis points in the 10-year U.S. Treasury futures yield.
Concerns over Italy’s adoption of a bigger fiscal deficit also hurt European stocks, which are thus far down by 4.0% in Italy, 1.7% in Spain, 1.3% in Germany, 0.8% in France, 0.6% in Switzerland and the U.K. and 0.5% in Greece. In the Pacific Rim, Japan’s Nikkei and the Chinese Composite Shanghai index rose by 1.4% and 1.1%, and there were other advances of 0.8% in Indonesia, 0.7% in New Zealand, 0.6% in Singapore and 0.4% in Australia to go along with declines of 0.6% in India, 0.5% in South Korea and 0.3% in Taiwan.
The dollar has moved down 0.5% and below 1.1600 per euro. The dollar also slid 0.2% against the loonie and 0.1% versus the yuan and Aussie dollar but rose 0.2% relative to the peso and sterling and by 0.1% versus the Swiss franc. Commodity prices are little changed.
America and the world were riveted on yesterday’s Kavanaugh confirmation hearing, which started off civil but degenerated into a highly toxic partisan circus. The Senate Judiciary Committee is expected to approve Kavanaugh’s nomination early today, and Republican leaders hope to hold a full senate vote tomorrow. However this turns out, Americans are waking up to a country more divided than its been in 150 years.
Being the last business day of September and the third quarter, a ton of economic data is being reported today.
In Japan,
- The jobless rate slipped back 0.1 percentage point to 2.4% in August, and employment that month was 1.7% greater than a year earlier.
- Consumer price inflation in Tokyo accelerated to 1.3% in September from 1.2% in August and 0.9% in July, but core inflation remained below 1%.
- Retail sales increased by a robust 0.9% on month in August and were 2.7% higher than a year earlier.
- Industrial production rose 0.7% last month, half what the market was anticipating, and was merely 0.6% higher than in August 2017. Officials said production is picking up slowly but shows signs of a decrease in part.
- Motor vehicle output in July was 2.0% less than a year earlier.
- Housing starts and construction orders recorded on-year increases of 1.6% and 0.5% in August. Both had been lower than a year earlier in June and July.
- A summary of the Bank of Japan’s Board meeting on September 18-19 reveals mounting concern among some about collateral damage to JGB bond liquidity and commercial bank profitability of the central bank’s easy stance.
Consumer price inflation in the euro area inched back in September to July’s 2.1% following a 0.1 percentage point dip in August, but core inflation fell unexpectedly to 0.9% from 1.0% in August and 1.1% in July. Energy prices were up 9.5% versus a 3.9% increase in the prior 12 months through September 2017.
British GDP grew 0.4% in the second quarter, but the associated on-year growth was revised down to 1.2%. Business investment, net exports, and government spending exerted drags on GDP growth. The British current account deficit equaled GBP 20.31 billion in the second quarter, its widest point in a year, and the associated merchandise trade deficit of GBP 34.7 billion was a 7-quarter high. Finally, British consumer confidence weakened more than forecast to a 2-month low in September.
German labor statistics showed a lower 5.1% jobless rate in September when there were 23K fewer unemployed workers and 6K more vacancies than in August. Employment climbed 1.3% on year in July-August.
Spanish GDP grew 0.6% on quarter in both 2Q and 1Q. On-year growth slowed to 2.5% in 2Q from 3.0% in the first quarter. Spanish CPI inflation was at 2.2% in each month of the third quarter.
French CPI inflation also was 2.2% in September, while producer price inflation slowed from 4.0% in July to 3.7% in August. Consumer spending in France rose 0.8% in August and by 1.3% from a year earlier.
Switzerland’s index of leading economic indicators rose to a 5-month high in September.
Italian and Portuguese CPI inflation rates in September were respectively 1.5% and 1.4%, with core inflation of 0.9% and 0.8%. Austrian PPI inflation remained at 3.4% in August.
Producer prices in the year to August soared 12.7% in Greece and 12.4% in Singapore and climbed 8.1% in Hungary. There was a PPI increase of 6.7% in Iceland and 2.2% in Cyprus that month but a dip of 0.3% in Malaysian producer prices.
Sweden’s economic tendency index strengthened marginally in September despite a 3-month low in manufacturing confidence. Consumer sentiment rose to a 7-month high.
Danish GDP grew 0.2% on quarter and 0.6% on year in 2Q18. The Danish jobless rate remained steady at 3.9% last month.
The volume of Norwegian retail sales rose 0.6% on month and 1.1% on year in August.
Portuguese retail sales rose 3.8% on year in August, but a similar comparison of industrial production shows a drop of 2.9%. Greek retail sales were 2.5% greater in July than a year earlier.
South African M3 money and private sector credit growth accelerated to 6.98% and 6.74% in August.
Turkey’s $2.41 billion trade deficit in August was the smallest shortfall in at least a year and down from $5.5 billion in July.
Consumer confidence in New Zealand stayed unchanged in September, breaking a run of three months in which such had weakened. New Zealand building permits rebounded 7.8% in August from a 10.8% drop in July.
Australian private credit and M3 money grew 4.5% and 2.4% between August 2017 and last month.
U.S. personal consumption expenditures rose 0.3% last month, down from monthly gains of 0.4% in both June and July and 0.5% in April and May. Personal income rose 0.3%, too. On-year growth in the PCE price deflator also decelerated to 2.2% from 2.3%, while the core PCE deflator printed at 2.0% for a fourth straight month.
Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British GDP and current account, euro area CPI, German unemployment, Italian budget, U.S. personal consumption expenditures