Yesterday’s Rebound in Sovereign Debt Yields Trimmed

August 20, 2019

Ten-year sovereign debt yields slipped Tuesday by five basis points in Germany and the United States, three bps in Great Britain and a basis point in Japan. Yields had dropped very sharply earlier in August but staged a rebound yesterday. Without government stimulus, investors fear a continuing global growth slowdown and possibly even a recession. But governments in the U.S., Europe, and China seem to be considering both fiscal and monetary stimulus.

Minutes released today from the August 6th Board meeting of the Reserve Bank of Australia asserted that growth risks in that economy are skewed to the downside, endorsed the likelihood that a number of other central banks will ease policy later this year, said its official cash rate would be cut if needed, and indicated that other policy options are being explored as well.

Today’s action in fixed rate assets contrasted with comparative calm in other markets. The dollar rose 0.3% overnight against sterling and by 0.2% versus the Aussie currency but fell by 0.3% relative to the yen, 0.2% against the peso and 0.1% vis-a-vis the Swiss franc and yuan. The dollar is also unchanged against the euro, loonie and kiwi. Among commodities, the price of gold firmed 0.2%, while that of WTI oil is 0.1% softer. Equities in the Pacific Rim rose 1.2% in Australia, 1.1% in South Korea and New Zealand, and 0.6% in Japan, but markets slid 0.2% in Hong Kong and 0.1% in China. The British Ftse and Paris Cac edged up 0.2% and 0.1%, while the German Dax so far is 0.1% lower. U.S. stocks opened lower after three consecutive daily gains.

German producer price inflation slipped 0.1 percentage point to a 31-month low of 1.1% in July. That is also down from 2.7% at the end of 2018. The 12-month rise in energy has declined to 2.2% from 6.6% as recently as April, and non-energy producer price inflation has halved from 1.3% in April to 0.7% in July.

Construction output in the euro area was flat on month in June, depressing its 12-month rate of increase to 1.0% from 1.7% the month before an d 6.9% in February. Construction declined 1.0% quarterly in 2Q.

The orders component of the CBI’s monthly survey of British industrial trends rebounded from a 9-year low of -34 in July to a 2-month high in August of -13.

Portuguese producer prices recorded consecutive year-on-year declines of -0.2% in June and -0.4% in July. PPI inflation this year crested in April at +2.0%.

The Swiss trade surplus of CHF 14.9 billion in the first half of 2019 was 55% wider than a year earlier.

The Greek current account posted a surplus of EUR 874 million in June but a deficit in the first half of 2019 of EUR 3.94 billion.

CPI inflation in Hong Kong remained unchanged in July from June’s 3.3% level, which had been its highest in 34 months.

Canada has not been immune from the global struggles of manufacturing, a sector that thrives or dies on the openness of international trade. In June compared to May, manufacturing sales, orders, and inventories respectively dropped by 1.2%, 4.2%, and 1.5%. Manufacturing sales were only 0.1% above year-earlier levels, and orders in that span plunged 3.7%. Inventories, which were 7.5% higher than in June 2018, are piling up.

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



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