U.S.-Sino Trade Tensions and U.K. Tory-Labor Brexit Talks Take a Turn for the Worse

May 17, 2019

Chinese officials poured cold water on hopes that trade tensions with the United States might de-escalate. In reaction, China’s stock market tumbled 2.5%, and the yuan fell 0.4% against the dollar. Share prices also dropped 1.5% in Hong Kong, 1.3% in India, 1.2% in Indonesia, 0.9% in Taiwan, 0.6% in South Korea and 0.8% in Singapore.

The British Labour Party leader, Corbyn, abandoned talks with Theresa May’s government, dashing hopes that she might yet secure parliamentary approval of a Brexit deal. A vote planned for early June has scant chance of passing. Sterling lost 0.3% against the dollar, the British Ftse has slipped 0.2%, and the 10-year British gilt yield has fallen four basis points.

Continental European stock markets have declined 0.8% in Germany and 0.4% in France, Switzerland, Spain and Italy. 10-year sovereign debt yields are down five basis points today in Greece and Italy and four bps in Spain and Portugal.

Japan is marching to a different tune. The yen has risen 0.2% against the dollar. The 10-year JGB yield is a basis point firmer, and the Japanese Nikkei-225 index climbed 0.9%.

Those Japanese market movements occurred in spite of another dismal tertiary index report of service sector activity. Japan’s tertiary index dropped for the fourth time in five months, falling 0.4% on month. It’s 12-month rate of increase was only 0.7%, down from 0.9% in February and 1.6% in January and 4Q18. The tertiary index had climbed 1.1% on average last year.

The dollar elsewhere appreciated 0.4% against the kiwi, 0.3% versus the peso, 0.2% vis-a-vis the loonie and Australian dollar and 0.1% against the euro, gold, Swiss franc and kiwi.

Late yesterday came the expected news that officials at the Bank of Mexico decided to leave their overnight interbank interest rate unchanged at 8.25%. A 25-basis point hike in December to the current highest level since 2008 culminated 475 basis points of tightening since the start of 2016. In a released statement by the central bank Governing Board, a mix of upside inflation risks and downside growth risks are cited, and special concern is expressed about the peso’s vulnerability. There is a hint that the central bank might have to tighten further “In the presence and possible persistence of factors that, by their nature, involve risks to both inflation and inflation expectations, monetary policy will be adjusted in a timely and firm manner to achieve the convergence of inflation to its 3% target and to strengthen the anchoring of medium- and long-term inflation expectations so that they attain such target.”

Amid U.S.-Iranian saber-rattling, the price of WTI oil climbed 1.1% to $63.54 per barrel.

Norwegians are celebrating Constitution Day today.

Final Euroland consumer price data confirmed that the 12-month rate accelerated to a 5-month high of 1.7% in April, led by services, which rose 1.0% on month and 1.9% on year, and non-energy industrial goods prices, which advanced 0.8% on month but just 0.2% on year. Core inflation was revised to 1.3% from a preliminary estimate of 1.2% and March’s 5-month low of 0.8%.

Construction output in Euroland dipped 0.3% in March but still managed to increase 2.0% in the first quarter. Construction posted a year-on-year rise of 6.3% in March.

On-year GDP growth in Hong Kong of merely 0.6% was the smallest in 9-1/2 years and sharply below the 4.6% in the previous four quarters through 1Q18.

Producer output prices in New Zealand unexpectedly fell 0.5% on quarter in 1Q19, trimming the year-on-year comparison to 2.6%. Producer input prices fell 0.9% on month, reducing its year-on-year advance to 3.1% from 4.7% in 4Q18 and 4.2% in 1Q18.

New Zealand’s manufacturing purchasing managers index rose a full point to 53.0 in April, a 2-month high but well down from a 58.9 reading in April 2018.

The Conference Board releases the U.S. index of leading economic indicators today, and the Reuters/U. Michigan consumer sentiment index arrives, too.

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


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