Two Surprises
May 20, 2019
The new week is greeting investors with two unexpected developments, one political and the other economic.
- The right-of-center Liberal-National coalition government of Australia was headed for defeat in parliamentary elections according to previous opinion polls but instead defeated its Labour Party opponent. Scott Morrison will remain prime minister, and he campaigned on a promise of tax cuts. Australian stocks jumped 1.7%, and the Aussie dollar has appreciated 0.7% against its U.S. counterpart.
- Pundits thought Japanese GDP contracted last quarter, but national income accounts for that economy released today instead revealed a 2.1% 1Q-over-4Q annualized advance (SAAR) in real GDP. All of the economic growth was attributable to net exports and inventory building. Exports fell 9.4% SAAR, but imports plunged 17.2% SAAR, thus augmenting the GDP growth rate by 1.6 percentage points (ppt), and inventories buoyed GDP by an additional 0.5 ppts. Real GDP was still only 0.8% higher than in the first quarter of 2018, and while positive for only the first time in a year, the GDP price deflator was just 0.2% greater than a year earlier.
Stock markets have struggled from trade war concerns. Japan’s Nikkei closed up only 0.2% despite the aforementioned much stronger-than-expected Japanese growth last quarter. Equities fell 1.0% in Hong Kong and 0.4% in China. European markets so far show daily declines of 2.6% in Italy, 1.5% in France and Germany, 1.1% in Switzerland, and 0.9% in the U.K. and Spain.
The dollar has dipped 0.1% against the yen, sterling, loonie, Swiss franc, kiwi and peso but is also unchanged against the yuan and 0.2% firmer against the euro.
Ten-year sovereign debt yields have firmed 1 basis point in Germany and Japan and by 2 bps in Great Britain. The price of gold is unchanged, but WTI oil rose 0.4% to $62.90.
New Zealand’s service sector purchasing managers index fell 1.1 points to a 79-month low of 51.8 in April.
German producer prices rose by a greater-than-forecast 0.5% in April, lifting their 12-month rate of increase from an 11-month low of 2.4% in March to a 2-month high of 2.5%. The energy component was 6.6% higher than a year earlier, while all other producer prices posted a collective 1.3% advance.
Euroland’s current account surplus in March was smaller than anticipated. At EUR 35.1 billion, such was EUR 9 billion less than EUR 43.9 billion in March 2018, and the seasonally adjusted surplus fell to EUR 24.7 billion from EUR 27.9 billion in February and EUR 37.6 billion in January. The surplus is now running a tad below, rather than somewhat above, 3.0% of GDP.
Italy recorded a EUR 7.17 billion current account surplus last quarter, up from EUR 4.34 billion in the first quarter of 2018.
Japanese industrial production in March was revised to show a smaller 0.6% contraction rather than 0.9% as reported initially. Still, output was 4.3% less than in March 2018. Industrial capacity failed to change in March or 1Q and was 0.1% less than a year earlier. Capacity usage dropped 0.4% in March and was 4.5% lower than a year earlier.
The British Rightmove house price index was greater than a year earlier in May for the first on-year advance since February, but the uptick was only 0.1%.
Portuguese PPI inflation accelerated to a four-month high of 1.9% in April. Such had bottomed in February at 0.8% but was as high as 4.2% last August.
Czech CPI inflation of 4.3% in April represents an 88-month high and compares to 3.8% in March and 2.4% at the end of 2018.
Unemployment in Hong Kong remained at 2.8% last month. It’s been at that 2-decade low for over a year.
Today’s most awaited U.S. economic news is a speech that Fed Chairman Powell will be delivering. Vice Chair Clarida and Philly Fed President Harker are also slated to speak publicly. The Chicago Fed National Activity index gets released, and the Bank of Israel is holding a monetary policy review.
Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Australian election, Euroland current account, Fed Chairman Powell, Japanese GDP