A Focus on Geopolitical Risk

May 7, 2019

U.S.-Sino trade talks are entering the final make-or-break stage. The Chinese delegation is coming to America, but the outcome of this final round of negotiations is much in doubt.

Meanwhile, Secretary of State Pompeo abruptly canceled a trip to Germany, citing unspecified pressing matters. This mysterious cancelation raises the possibility of a major event risk for investors.

The Reserve Bank of Australia produced a mild surprise after this month’s monetary policy review. Many analysts had anticipated an interest rate cut because inflation had fallen sharply last quarter, but officials instead left the 1.5% official cash rate unchanged. It’s been at that level since a 25-basis point cut in August 2016, which was the second such reduction that year. There were also a pair of 25-bp cuts made in both 2015 and 2013.  A released statement   

judged that it was appropriate to hold the stance of policy unchanged at this meeting. In doing so, it recognized that there was still spare capacity in the economy and that a further improvement in the labor market was likely to be needed for inflation to be consistent with the target.

Three Australian economic indicators were reported as well today:

  1. The construction purchasing managers index fell 3 index points to a 4-month low of 42.6 in April, indicating a sustained very weak housing sector.
  2. A trade surplus of A$ 4.94 billion was the second largest in at least a year. The first-quarter Australian trade surplus of A$ 14.74 billion was almost four times bigger than a year earlier.
  3. Retail sales rose 0.3% in March, beating expectations by a tad and lifting the on-year increase to 3.0%. But sales volume last quarter dipped 0.1% after holding flat in the final quarter of 2018.

Japan’s final manufacturing purchasing managers index for April returned to above-50 territory. It’s 50.2 revised level compared to a preliminary estimate of 49.5, a value of 49.2 in March and one of 48.9. It constitutes a 3-month high.

German industrial orders rose less than half as much in March as predicted. Orders plunged 4.0% in the first quarter and were 6.0% lower in March than a year earlier. Domestic orders for capital goods, a leading indicator of business investment, dropped 6.5% on month in March.

The French trade deficit of EUR 5.324 billion in March surpassed expectations and helped lift the current account deficit in the first quarter to EUR 1.3 billion versus a EUR 0.7 billion surplus a year earlier.

The Halifax index of British house prices only recovered 0.1% in April after a 1.6% drop in March but still posted the largest on-year rise so far this year of 4.5%.

Euroland’s construction purchasing managers index fell to a 3-month low in April of 52.1. The German construction PMI level of 53.0 was also at a 3-month low, while construction indices in France of 50.8 and Italy of 52.5 represented 2- and 4-month highs.

Russia’s service sector purchasing managers index dropped 1.8 points to a 10-month low of 52.6 in April.

Brazil’s composite and service-sector PMI readings last month (50.6 and 49.9) were the lowest since September.

South Africa’s ABSA manufacturing purchasing managers index was below the 50 no change level for a fourth straight time in April but, at 47.2, was the highest since January.

Lebanon’s PMI also was less than 50 in April but higher than its March value.

Filipino consumer price inflation slowed to 3.0% last month from 3.3% in March, 5.1% at end-2018 and a cresting 6.7% last October.

The SACCI index of business confidence in South Africa improved from a 7-month low of 91.8 in March to a 3-month high of 93.7 last month.

The U.S. JOLTS index and IBD/TIPP Optimism survey get released today, and so does Canada’s IVEY-PMI index.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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