Risk Preference Restored after China and U.S. Postpone Tariff Escalation

July 1, 2019

Trump and Xi agreed that their government negotiators would keep talking about trade. Feared jump in tariffs avoided for now.

Share prices advanced 2.2% in China, 2.1% in Hong Kong and Japan, and 1.5% in Singapore and Taiwan. The S&P 500 is 1.2% higher. European stock market gains so far amount to 1.3% in Germany, 0.9% in Spain and Italy, and 1.1% in Great Britain.

10-year sovereign debt yields fell 15 basis points in Greece, 11 bps in Italy, 3 bps in the U.K. and France,  and 2 bps in the United States.

Oil leaped 2.2%, while the price of gold fell 1.2% and below $1400 per ounce.

The dollar appreciated overnight by 0.8% against the Swiss franc, 0.5% relative to the Australian dollar and sterling, 0.4% vis-a-vis the yen, 0.3% against the euro and 0.2% versus the loonie. Canadian markets are closed for Canada Day.

The U.S. currency alternatively dropped 0.8% against the Mexican peso and 0.3% relative to the Chinese yuan.

The trade truce overshadowed many dismal manufacturing purchasing manager surveys (PMIs) and other dismal data reported today.

Euroland’s PMI in manufacturing printed at a 3-month low of 47.6. That’s the fifth sub-50 monthly score in a rows, signifying a contraction trend, and this final result for June was 0.2 points below the preliminary indication. Five members of the euro area reported sub-50 PMI readings. The Irish, Dutch, Spanish and Austrian PMIs were the lowest readings in 73, 72, 74, and 55 months. Greece had the highest score, 52.4, but it constitutes a 19-month low. Domestic and export demand is sputtering, and inflationary pressure is receding.

China’s Caixin manufacturing PMI of 49.4 in June showed the fastest contraction in five months. The government-compiled Chinese PMI was at a 4-month low, and its non-manufacturing counterpart fell to a 6-month  low.

The Swiss manufacturing PMI of 47.7 represents a 51-month low.

The British manufacturing PMI got clobbered by Brexit concerns and dropped 1.4 points to a 76-month low of 48.0.

Russia’s 48.6 PMI fell to an 11-month  low. The Czech and Polish scores were the lowest in 119 and 4 months.

Norway’s PMI dropped 2.2 points to an 11-month low, and Sweden’s 52.0 reading was at a 2-month low.

India’s PMI fell from a 3-month high in May to a 2-month low in June.

Elsewhere in Asia, the PMI readings in Taiwan and South Korea were below 50 and at 91- and 4-month lows. Thailand and Indonesia had 3- and 2-month lows reported. The Filipino PMI rose to a 3-month high of only 51.3, and Vietnam’s 52.5 reading was at a 2-month high.

Japan’s manufacturing PMI dropped a half point to a 3-month low of 49.3.

Brazil’s PMI recovered 0.8 points to a 2-month high of 51.0.

The Institute of Supply Management’s U.S. purchasing managers index fell 0.4 points but stayed above the expansion versus contraction threshold with a reading of 51.7. Inflation receded sharply.

The Bank of Japan’s quarterly Tankan survey of corporate conditions and expectations revealed the weakest situation for large manufacturers since the summer of 2016, but conditions faced by big non-manufacturers improved slightly. Projected investment by all firms this fiscal year was revised up slightly to a rise of 2.3%.

Unemployment in the euro area unexpectedly fell 0.2 percentage points in May to 7.5%, which was down also from 8.3% a year earlier.

On-year German growth in employment slowed to 1.0% in May from 1.1% in the first four months of 2019.

Italian unemployment slid below the 10% threshold to 9.9% in May.

Japanese consumer confidence eroded further in June to a 55-month low.

Swiss retail sales were 1.7% lower in May than a year earlier, marking the biggest year-on-year drop in 8 months.

British money growth slowed sharply to just 2.2% on year in the M4 money aggregate.

Industrial production in Portugal recorded a seventh straight year-on-year decline during May, but at 0.6%, such was the smallest drop in this streak.

South Korea experienced a $19.5 billion trade surplus in the first half of 2019, which was 47.6% smaller than a year earlier.

Indonesian CPI inflation held steady in June at 3.3%.

U.S. construction spending fell 0.8% in May.

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

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