Busy Session on Last Business Day of August

August 30, 2019

A heap of economic data have been released, but also the following important geopolitical developments have occurred.

  • A Scottish judge denied a court challenge to block Prime Minister Johnson’s plan to suspend parliament for a couple of weeks and thereby prevent parliament from organizing to prevent a hard Brexit if no deal can be reached.
  • Leaders of the street protests in Hong Kong were arrested.
  • Hurricane Dorian in the Atlantic is expected to strengthen to a Cat 4 storm and is on a path to make landfall in central Florida early Tuesday.

In market action overnight, the dollar is unchanged against sterling and the Canadian, Australian, and New Zealand dollars. The greenback firmed 0.2% against the euro and Swiss franc and 0.1% against the yuan but slipped 0.1% against the yen and 0.3% versus the peso.

Stock markets in the Pacific Rim except in China (down 0.2%) and Hong Kong (up 0.1%) did well following a big rise in U.S. share prices Thursday. Gains Friday included 1.8% in New Zealand, 1.5% in Taiwan and Australia, 1.2% in Japan, and 0.6% in Singapore. In Europe, equities thus far have risen 1.2% in Germany, 0.9% in France, 0.7% in the U.K., and 0.6% in Spain and Italy.

Ten-year sovereign debt yields are up 2 basis points in the U.S. and a basis point in Japan and Britain but down a basis point in Germany.

WTI oil fell 1.4%, while Comex gold edged 0.2% lower.

Japan reported retail sales, industrial production, unemployment, auto output, housing starts and construction orders. Retail sales slumped 2.3% on month and 2.0% on year, and large-store sales posted a 4.8% 12-month rate of decline. Industrial production rebounded 1.3% in July after a 3.3% slump in June. Production was also higher than a year (+0.7%) for the first time in six months. Officials nonetheless kept their trend designation unchanged at “output fluctuating indecisively.” Compared to levels in July 2018, motor vehicle output and housing starts in July were 1.5% and 4.1% lower, but construction orders registered a 12-month 26.9% advance. The core rate of CPI inflation in Tokyo this month was 0.6%. Unemployment fell to a 14-month low of 2.2%, and employment growth picked up to 1.1% from a year earlier. However, the ratio of job offers to applicants slipped for a second straight month in July.

Euroland’s unemployment rate was 7.5% in July, same as in June but down from 8.1% a year earlier. But youth unemployment edged up 0.1 percentage point to 15.6%.

Harmonized euro area CPI inflation in August remained at 1.0% and was associated with a 0.9% rate of core CPI, which also was unchanged from June’s pace.

Within Euroland,

  • German retail sales recorded their largest monthly decline (2.2%) in July since last December.
  • French producer price inflation declined 0.2 percentage points to zero percent in July, while CPI inflation there stayed at 1.1%.
  • Italian GDP stagnated in the second quarter. That’s the fourth quarter without positive economic growth in the past five quarters and left GDP 0.1% below its year-earlier level.
  • Italian unemployment increased to a 2-month high of 9.9% in July, while CPI inflation of 0.5% this month was 0.1 percentage point greater than in July.
  • Spanish retail sales rose 0.2% on month and 3.2% on year in July.
  • Greek producer prices were lower than a year earlier for a second straight month in July, this time by 0.9%. As recently as March, the on-year PPI increase was 4.4%.
  • Portuguese GDP posted the same quarterly and on-year increases, respectively 0.5% and 1.8%, in the second quarter as such did in the first quarter, but on-year growth was down from 2.5% in the second quarter of 2018.
  • Portuguese retail sales and industrial production recorded a respective gain of 4.7% and drop of 3.5% in July from year-earlier levels. Portuguese CPI inflation was negative in August for the third time in four months. The CPI slid 0.1% both month on month and year on year in August.
  • The year-on-year drop in Austrian producer prices remained 0.2% for a second straight month in July versus a 12-month rise of 1.6% back in January.

British consumer confidence dropped 3 index points to a 7-month low in August.

Britain’s Nationwide house price index was unchanged on month and up only 0.6% on year in August.

M4 money growth in the U.K. rose to a 3-month high of 2.7% in July. Mortgage applications were also greater in July than June, but consumer credit lessened.

The Swiss index of leading indicators matched July’s reading in August. This was stronger than in May or June but below April’s level.

On-year 1.4% growth in Icelandic GDP last quarter was down from 6.7% in the second quarter of 2018, reflecting the troubled tourism sector.

On-year Polish and Hungarian GDP growth in the second quarter was 4.5% and 4.9%, respectively.

Danish GDP rose 0.8% on quarter and 2.3% on year in 2Q. Retail sales in Norway increased 0.8% in July after a 0.4% drop in June, leaving such 0.9% above its year-earlier level.

On-year South African M3 money growth decelerated to 8.28% last month, while growth in private credit picked up to 7.19%.

Australian and New Zealand building permits respectively fell 9.7% and 3.1% in July from a month earlier. That was the third decline in four months in Australia’s case.

South Korean industrial production and retail sales in July were respectively 0.6% higher and 0.3% lower than a year earlier.

The Bank of Korea left its 7-day repo rate unchanged at 1.5% as was expected. A 25-basis point cut at the prior policy review in July had been the first decline in 37 months. In between two increases had been engineered in November 2017 and November 2018. A statement released by the central bank paints a familiar picture of sluggish growth and low inflation “owing chiefly to the escalation of the US-China trade dispute and the heightened geopolitical risks.” There is a hint that the already accommodative monetary policy may yet be loosened further.

Filipino PPI inflation of 1.1% in July was down from 1.4% in June and 4.7% in March.

Canadian PPI inflation remained negative in July’s at June’s reading of -1.7%. Producer prices posted a 0.3% monthly decline.

Canadian Real GDP revived in the second quarter with a quarterly non-annualized 0.9% advance after back-to-back upticks of only 0.1% in the previous two quarter. Expressed at a seasonally adjusted annualized rate to conform to the manner in which U.S. GDP figures are reported, Canadian growth accelerated to 3.7% last quarter from 0.5% in the first quarter. The revival was fully attributable to a burst of exports. Domestic demand remained very subdued, with business investment dropping 1.6% and consumption growth slowing to 0.1% from 0.7% a quarter earlier.

Canadian GDP compiled monthly from the supply side reveals an economy not firing on all cylinders as well. GDP in June grew just 0.2%, and industrial production sank 0.7% on month and edge up only 0.1% from the June 2018 level.

U.S. personal income rose 0.1% in July, less than was forecast, but personal spending growth of 0.6% was a tad above forecast. The PCE price deflator edged up 0.2% on month and 1.4% on year, while its core equivalent also rose 0.2% on month but 1.6% on year. Inflation remains below the Fed’s target.

The Chicago Fed monthly regional purchasing managers survey will be reported a little later.

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

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