Yuan Sinks to 11-Year Low and Depresses Global Stocks & Sovereign Debt Yields

August 5, 2019

It’s been a chaotic day in financial markets, with America seemingly at war on several fronts and non-manufacturing PMIs down in the U.S., Europe, Japan and China.

The dollar rose 1.6% against the yuan and 1.3% relative to the peso but fell 1.7% against the euro, 1.0% relative to the Swiss franc, and 0.5% vis-a-vis the Japanese yen.

Ten-year sovereign debt yields slumped nine basis points in the U.S., 4 bps in the U.K., 3 bps in Japan and 2 bps in Germany.

Share prices have dropped 2.0% or more in the United States, Britain, Hong Kong,  France, South Korea, Indonesia and Singapore. Declines in Japan, China, and Germany are greater than 1.5%.

WTI oil fell 1.3%, but a clear winner has been gold, which is up 1.4% at more than $1475 per ounce.

The yuan weakened past 7.0 per dollar for the first time since 2008. This follows U.S. President Trump’s escalation of tariffs on imported Chinese goods and in turn elicited a tweeted accusation that Beijing officials are manipulating their currency. Trump also has cast blame for weekend shootings in El Paso and Dayton on the media and immigration, and a new arms race between the U.S. and Russia seems imminent.

The ISM’s non-manufacturing U.S. purchasing managers index sank 1.4 points in July to  a 35-month low. The activity/production sub-index slumped 5.1 points, and inflation slid 2.4 points.

Euroland’s composite and services PMIs readings were at 2-month lows of 51.5 and 53.2. The data imply economic growth of no more than 0.1% and include a 73-month low in Germany’s composite PMI.

Britain recorded a composite PMI of only 50.3, suggesting very scant positive growth at the start of the third quarter.

Japan’s composite and services purchasing manager readings of 50.6 and 51.8 constitute 4- and 2-month lows.

China’s Caixin-compiled services PMI fell 0.4 points to a 5-month low, and its composite PMI recovered just 0.3 points to 50.9.

Hong Kong’s private PMI score, 43.8, signifies the fastest rate of contraction since March 2009.

Singapore’s private PMI ticked up to a 2-month high but of only 51.0.

Composite and service-sector PMIs in Australia according to CBA were at 2-month lows, while the AIG services PMI for that economy fell over 8 points to a 36-month trough.

Russian and Indian PMIs were higher than in June. But Russia’s composite score was only 50.2, and its 50.4 services PMI was well under the long-term series mean.

Standard Bank’s private South African PMI sank 1.3 points to an 8-month, sub-50 low of 48.4.

Egypt’s non-oil PMI was at a 3-month high but barely above the no change 50 line with a reading of 50.3.

Non-oil Saudi and UAE PMIs showed the slowest positive growth in five months. Lebanon’s private PMI rose to a 29-month high but stayed low at 47.7.

Brazil’s services and composite PMIs improved to 4-month highs of 52.2 and 51.6.

Swiss retail sales volume bounced back more sharply than forecast in June, rising 1.5% after May’s 1.8% drop and resulting in the highest 12-month increase (0.7%) in 8 months. Swiss consumer confidence printed at -8.0 this quarter versus -9.3 in the second quarter.

British new car sales in July were 4.1% smaller than a year earlier.

Turkish CPI inflation accelerated to 16.65% in July from a 14-month low of 15.72% in June. Core CPI inflation increased 1.35 percentage points to 16.2%, but Turkish PPI inflation fell to 21.66%, a 14-month low.

Indonesian real GDP grew by an as-expected 5.05% between the second quarters of 2018 and 2019. That’s a 2-year low.

Spanish consumer confidence dropped back to a 2-month low in July from June’s 10-month high.

Mexican consumer confidence fell to an 8-month low last month.

The Sentix gauge of investor confidence toward the euro area weakened sharply in August to a 58-month low of minus 13.7 versus -5.8 in July, -3.3 in June and +5.3 in May.

On the central banking front, the National Bank of Romania left its monetary policy rate unchanged at 2.5%. That’s been the level since a 25-basis point hike in May 2018 and constitutes its highest since February 2015. A released statement from Romania’ central bank Board projects continuing above-target inflation for the short run and makes a number of general observations about external circumstances: “There is an increasing number of signs on a worsening of the euro area and global economies and the ensuing uncertainties about their outlook are growing, especially amid the trade war and Brexit. Particularly relevant are the ECB’s and the Federal Reserve’s decisions on monetary policy easing, as well as the stance of central banks in the region.” U.S. President Trump’s tweets today made another sarcastically negative remark about the Fed.

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

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