Most Stock Markets Slide Amid Continuing Geopolitical Tensions

June 14, 2019

Equities overnight by 1.0% in China, 0.7% in India, and 0.6% in Hong Kong. European losses so far amount to 0.8%, 0.7%, 0.6% and 0.5% in Germany, Spain, the U.K., and France. But the Japanese Nikkei closed 0.4% higher.

The United States is engaged in a three-frontal confrontation: a trade war with China, a potential real war with Iran, and pressure on Mexico to stop migrants from crossing the U.S. Southern border. Street protests in Hong Kong add to the geopolitical tensions.

Ten-year sovereign debt yields fell today by two basis points in the U.K. and Japan, and in futures trading the U.S. 10-year Treasury yield is 3 basis points lower.

Gold has climbed 1.0% even though the dollar shows overnight appreciation of 0.6% against the kiwi, 0.3% relative to sterling, 0.2% vis-a-vis the euro, Aussie dollar and Swiss franc and 0.1% versus the loonie. The yen strengthened 0.3% against the dollar.

The second estimate of Japanese industrial production growth in April was unrevised from 0.6% estimated initially. Industrial capacity fell 0.8% on month and 0.5% on year, however, and industrial production was 1.1% lower than in April 2018. Service sector activity was reported yesterday to have climbed 0.8% in April, the biggest monthly advance in a half year after stagnating in the first quarter.

Several Chinese data were reported today. Reflecting softness in May, on-year growth in industrial production slipped to 5.0% from 5.4% in April and 8.5% in March. Fixed asset investment growth of 5.6% on year in the first five months of 2018 was down from 5.9% in full-2018. Property investment slowed to 11.2% on year from 11.9% the month before. But unemployment matched April’s 5.0% reading after 5.2% in March and 5.3% in February, and on-year growth in retail sales accelerated to 8.6% in May from 7.2% in April. May’s retail sales growth rate still fell shy of 9.0% in all of 2018.

The kiwi fell on news that New Zealand’s manufacturing PMI had unexpectedly slumped 2.5 index points to a 77-month low of 50.2, indicating near stagnation. New Zealand food price inflation accelerated to a 3-month high in May of 1.7%.

Among other reported inflation news around the world,

  • French consumer price inflation dropped 0.4 percentage points to a 21-month low in May. Core CPI dipped to a measly 0.5%.
  • Italian CPI inflation edged 0.1 percentage point lower to a 13-month low of 0.8%.
  • German wholesale price inflation declined a half percentage point to a 3-month low in May of 1.6%.
  • Finnish CPI inflation in May of 1.2% was down from 1.5% in April.
  • Portuguese CPI inflation was halved to 0.4% in May.
  • Swedish CPI inflation rose to a 7-month high of 2.2% last month.
  • Polish CPI inflation increased to 2.4%, an 18-month high, in May from 2.2% in April.
  • Indian wholesale price inflation of 2.45% in May was the lowest since July 2017. Food, fuel, and manufactured goods prices each exhibited deflationary tendencies.
  • Switzerland’s combined producer price/import price index was unchanged for a second straight month compared to the month before and down 0.8% when compared to its level in May 2018.
  • U.S. import prices slid 0.3% on month in May and fell by 1.5% on year. Both fuel and the non-fuel components were lower than a year earlier.

The U.S.-Sino trade conflict continued to weigh on Euroland industrial production in April, depressing such by 0.5% that month after a 0.4% slide in March and no change in February.

Australian labor statistics in May were mixed. The jobless rate stayed at 5.2%, and the number of full-time workers only climbed 2.4k. But overall jobs went up 42.3k, and labor participation edged marginally higher.

In central banking news, the Central Bank of Russia today cut its benchmark interest rate for the first time since March 2018. The 25-basis point rate reduction to 7.5% had been foreshadowed in comments made after the previous monetary policy review, and today’s released statement points to more rate relief in coming months if inflation continues to settle back from 5% currently toward the 4% target as officials expect it will. The previous monetary policy changes in Russia were a pair of 25-basis point interest rate hikes in September and December of 2018.

The Swiss National Bank’s quarterly monetary policy review yesterday left the expansionary stance unchanged. Viewing their currency to be overly pricey, officials remain prepared to intervene against excessive appreciation on a discretionary basis as appropriate. The 3-month sight deposit target remains negative 0.75% as defined by a -1.75 to -0.25% 3-month LIBOR corridor. However, officials in a released statement introduced a new SNB policy rate, which also is -0.75%. The interest rate benchmark has been at that level since January 2015 when automatic intervention and a 1.26 franc per euro parity was abandoned. Swiss officials revised inflation forecasts, which as always are conditional upon an unchanged monetary policy, by 0.1 percentage point to 0.7% in 2020 but lowered the projection for 2021 by a similar increment to 1.1%.

Just In: U.S. retail sales growth accelerated but by marginally less than expected in May. Sales rose 0.5% compared to April and 3.2% from a year earlier. Personal consumption this quarter has picked up somewhat.

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

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