Continuing Confusion over Status of U.S.-Sino Trade Dispute

August 27, 2019

Monday’s mixed signals about whether there had been a weekend overture between Trump and Chinese officials to resume trade talks has not been clarified. The yuan meanwhile slid another 0.1% on net and touched an intra-day low of 7.1692 per dollar, 4.0% lower than its end-July value.

Against other key currencies overnight, the dollar fell 0.4% against the yen and sterling, 0.2% relative to the loonie and 0.1% vis-a-vis the euro. Alternatively, the dollar rose 0.2% against the Aussie dollar (a top official of the Reserve Bank of Australia, Debelle, hinted at the possible future use of unconventional monetary stimulus and said that further Aussie dollar depreciation would be welcome). The dollarĀ  rose 0.3% versus the Mexican peso and 0.1% relative to the Swiss franc.

Share prices around the Pacific Rim rose 1.4% in China, 1.0% in Japan and Indonesia, 0.6% in India, and 0.5% in Australia but slid 0.1% in Hong Kong where the politics remains tense. Stock markets in Europe thus far on Tuesday show gains of 1.2% in Italy, 0.7% in Spain, 0.7% in Spain, 0.6% in Germany, and 0.3% in France but a dip of 0.1% in the U.K..

The ten-year U.S. Treasury yield slipped 3 basis points, and West Texas Intermediate crude oil rose 1.2%. Gold firmed 0.2%, and ten-year sovereign debt yields are unchanged in Germany, Japan and Great Britain.

Revised and complete second-quarter German national income accounts data released today confirm that real GDP dipped 0.1% compared to 1Q and unchanged relative to the second quarter of 2018 (0.4% on year when adjusted for the one less business day in 2Q19 than 2Q18). Quarter-on-quarter GDP growth was depressed by a 0.5 percentage point drag from net foreign demand. Weather distortions caused a 1.0% decline in business spending on construction, but government spending, personal consumption and inventory changes made positive growth contributions. Two of the last four quarters have shown negative growth, and more timely data points to a continuing loss of economic momentum in Europe’s largest economy.

French sentiment in manufacturing improved a tad in August, but the retail sector deteriorated despite steady consumer confidence.

Swedish producer price inflation, which crested last year at 10.1% in September, dropped another 0.5 percentage point to 2.0% in July, a 34-month low. A SEK 6.7 billion Swedish trade surplus in July lifted the year-to-date surplus to SEK 30.9 billion, which compares favorably with a SEK 18.2 billion deficit a year earlier.

Finnish consumer confidence settled back to a 2-month low in August.

Corporate service price inflation declined 0.2 percentage points in Japan to 0.5%, which matches the lowest 12-month increase since November 2016. The Bank of Japan’s monthly measure of underlying CPI inflation stayed at 0.6% in July. It’s been 0.7% of less since March 2018.

Chinese corporate profits were 2.6% higher than a year earlier in July but on average down 1.7% in the first seven months of 2019 from a year before.

South Korean consumer sentiment dropped 3.4 index points to a 32-month low in August and has fallen by 9.1 points since March amid escalating global trade tensions.

Brazil’s current account experienced a $9.04 billion deficit in July to post a year to date deficit of $21.68 billion, which is five times the year earlier deficit. Mexico ran a $2.028 billion January-July trade surplus in spite of a deficit of $1.1 billion last month.

U.S. data due today include consumer confidence, the Case-Shiller and FHFA house price indices, and the Richmond Fed manufacturing index.

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

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