Further Decline in Sovereign Debt Yields and Share Prices

May 29, 2019

The ten-year U.S. Treasury yield dropped another 3 basis points, and sovereign debt yields of similar maturity slid a basis point overnight in Germany, the U.K., and Japan as well.

Investors are bracing for slower global growth as trade protectionism intensifies.

Share prices fell by a bit more than 1.0% in Japan, South Korea, France, Germany, Switzerland, Spain and Italy.

The price of West Texas Intermediate crude oil declined 2.0% to less than $59 per barrel. Gold has firmed 0.4%.

The dollar has been an oasis of calm for the most part, with no net movement overnight against the yen, yuan or Australian dollar and upticks of just 0.1% versus the euro, Swiss franc, loonie and sterling.

The South African rand dropped over 1% against the dollar, in contrast. The reappointment of Deputy President Maboza casts doubt that corruption afflicting the ANZ will be addressed.

Bank of Japan Governor Kuroda urged the use of unconventional tools to boost depressed inflation expectations.

First-quarter GDP data were reported for France, Austria, Denmark, and Sweden.

  • French GDP rose 0.3% versus the prior quarter, keeping on-year growth at 1.2%, which is only half as much as real GDP had advanced over the year through the first quarter of 2018. Net foreign demand exerted a drag on GDP, but domestic demand was supportive.
  • Austrian GDP increased 0.4% on quarter for a third straight period, but the year-on-year growth rate of 1.4% was the smallest gain in ten quarters there.
  • Danish GDP edged up just 0.2% on quarter, least since the summer of 2017, resulting in a 0.4 percentage point slowdown of on-year growth to 2.2%, lowest since the spring of last year.
  • Swedish GDP growth of 0.6% on quarter was just half as much as in the final quarter of 2018. On-year growth of 2.1% was down from 2.4% in 4Q18 and 3.6% in 1Q18.

Other French data released today showed 1) the first month-on-month rise of consumer spending (0.8% in April) since January; 2) a 0.2 percentage point uptick to 2.2% in PPI inflation last month; but 3) a 20-month low in CPI inflation of 1.0% in May versus 1.3% in April.

Germany’s labor ministry reported the first on-month increase in the number of unemployed workers since mid-2017, and that jump of 60K  reversed to combined decline over the previous five months. The unemployment rate rose to 5.0% after back-to-back 4.9% readings in March and April, but on-year 1.1% growth in employment matched the first-quarter outcome.

The Swiss ZEW expectations index, a gauge of investor confidence in that economy, relapsed to a reading of -14.3 in May from -7.7 in April but still well above -44.0 in January. Switzerland’s leading economic index slid 1.8 index points to a 3-month low in May.

Italian manufacturing economic sentiment and consumer confidence both improved during May to respective 4- and 3-month highs.

British shop price inflation doubled in May to 0.8%, a 2-month high.

ANZ-compiled data on the New Zealand economy showed improvement during May, with the business activity outlook climbing 1.5 points to a 3-month high of 8.5 and the business climate index rising unexpectedly to a reading of negative 32.0 from negative 37.5 the month before.

Icelandic producer price inflation accelerated two percentage points to a 5-month high in April of 10.2%. But PPI inflation in Singapore collapsed 3.3 percentage points to a 4-month low in April of 0.4%.

Norwegian retail sales growth from a year earlier of 1.6% in April was the most since May 2018.

The Bank of Canada’s Board later this morning will be announcing the result of its third monetary policy review of 2019 and is expected to maintain its overnight interest rate target at 1.75%. Such has been at that level since a 25-basis point increase last October. There were quarter-percentage point hikes done also in July and September of 2017 and January and July of 2018.

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

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