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The US dollar is mostly lower, though one of the features of
recent days has been the dramatic slide of the Swiss franc, and that is
continuing today. The
franc is off another 0.5% today, to bring its weekly loss to a sharp 2.5%. The
euro finished last week near CHF1.1030 and is now near CHF1.1370; its highest
level since the cap was lifted in
mid-January 2015.
recent days has been the dramatic slide of the Swiss franc, and that is
continuing today. The
franc is off another 0.5% today, to bring its weekly loss to a sharp 2.5%. The
euro finished last week near CHF1.1030 and is now near CHF1.1370; its highest
level since the cap was lifted in
mid-January 2015.
The dollar-bloc currencies
are underperforming a bit, but the European complex is firm, led by the Swedish
krona, which has been buoyed by a sharp
jump in Q2 GDP. The
1.7% quarterly expansion in the April to June period was near twice expectations. The nearly 1%
rise of the krona today lifts the weekly gain to 1.25% and extending the rally
for a fifth consecutive week.
are underperforming a bit, but the European complex is firm, led by the Swedish
krona, which has been buoyed by a sharp
jump in Q2 GDP. The
1.7% quarterly expansion in the April to June period was near twice expectations. The nearly 1%
rise of the krona today lifts the weekly gain to 1.25% and extending the rally
for a fifth consecutive week.
Global equity markets are
sliding, as the high flying technology sector succumbs to profit-taking
pressures. US
S&P technology sector is up 22% year-to-day. The retreat began in the
US yesterday, and continued in after hours trading, following the disappointing
news from Amazon. The decline carried over into Asia, where the MSCI Asia
Pacific Index was off 0.7%, and offset the gains earlier in the week to close
fractionally lower for the week, and on its lows. Chinese equities were
resilient and were the only large market
in the region to close higher. The tech heavy Korean Kospi slid 1.7%, the
most since last November.
sliding, as the high flying technology sector succumbs to profit-taking
pressures. US
S&P technology sector is up 22% year-to-day. The retreat began in the
US yesterday, and continued in after hours trading, following the disappointing
news from Amazon. The decline carried over into Asia, where the MSCI Asia
Pacific Index was off 0.7%, and offset the gains earlier in the week to close
fractionally lower for the week, and on its lows. Chinese equities were
resilient and were the only large market
in the region to close higher. The tech heavy Korean Kospi slid 1.7%, the
most since last November.
European equities are also
heavy. The Dow
Jones Stoxx 600 is off 1% in morning turnover. Information technology, telecom, and materials are the hardest hit
sectors. The benchmark was up 0.5% on the
week coming into today, so without a recovery, it will finish lower for the
second consecutive week. It has
declined in seven of the past 10 weeks.
heavy. The Dow
Jones Stoxx 600 is off 1% in morning turnover. Information technology, telecom, and materials are the hardest hit
sectors. The benchmark was up 0.5% on the
week coming into today, so without a recovery, it will finish lower for the
second consecutive week. It has
declined in seven of the past 10 weeks.
The retreat in equities is
not providing the bond markets with a good bid. Bond markets are also heavy,
and benchmark 10-year yields in Europe are 3-6 basis points and are 6-9 basis
points higher on the week. The US 10-year yield is up a single basis
point at 2.32%, a six basis point increase on the week.
not providing the bond markets with a good bid. Bond markets are also heavy,
and benchmark 10-year yields in Europe are 3-6 basis points and are 6-9 basis
points higher on the week. The US 10-year yield is up a single basis
point at 2.32%, a six basis point increase on the week.
There are several developments to note. In the US, there have been two
important legislative events that will likely underscore investor anxiety about
Trump Administration’s economic agenda going forward. First, in the House
of Representatives, the Border Adjustment Tax (BAT) has been dropped from the
tax reform measures being debated. This is important, not so much because it
indicates a step away from protectionism, but because without the funds from
BAT, significant tax reform is considerably more difficult. Moreover, and
secondly, the Senate’s efforts to repeal and replace or even repeal the
Affordable Care Act has been defeated,
and the bill has been pulled.
important legislative events that will likely underscore investor anxiety about
Trump Administration’s economic agenda going forward. First, in the House
of Representatives, the Border Adjustment Tax (BAT) has been dropped from the
tax reform measures being debated. This is important, not so much because it
indicates a step away from protectionism, but because without the funds from
BAT, significant tax reform is considerably more difficult. Moreover, and
secondly, the Senate’s efforts to repeal and replace or even repeal the
Affordable Care Act has been defeated,
and the bill has been pulled.
In Japan, the labor market
got tighter, and consumers shopped, but
price pressures remained minimal. The unemployment rate unexpectedly fell to 2.8% in June from 3.1%,
and that job-to-applicant ratio rose to
1.51 from 1.49. On a year-over-year basis, household spending rose 2.3%.
It is the first rise in over a year. On the other hand, headline
and core CPI was unchanged at 0.4% year-over-year.
got tighter, and consumers shopped, but
price pressures remained minimal. The unemployment rate unexpectedly fell to 2.8% in June from 3.1%,
and that job-to-applicant ratio rose to
1.51 from 1.49. On a year-over-year basis, household spending rose 2.3%.
It is the first rise in over a year. On the other hand, headline
and core CPI was unchanged at 0.4% year-over-year.
In Europe, Germany and Spain
have reported preliminary July CPI figures, while Spain and France have also
reported Q2 GDP. It
appears that fuel prices were behind the tick up in Spanish headline CPI which
rose to 1.7% from 1.6%. German states have reported, and this suggests a risk that the national figure that will be reported in the German afternoon may have
risen 0.3-0.4% on the month for a year-over-year rate little changed from
June’s 1.5% pace. The eurozone aggregate
figure will be reported next week.
It is expected to be unchanged at 1.3% on the headline and 1.1% at the
core.
have reported preliminary July CPI figures, while Spain and France have also
reported Q2 GDP. It
appears that fuel prices were behind the tick up in Spanish headline CPI which
rose to 1.7% from 1.6%. German states have reported, and this suggests a risk that the national figure that will be reported in the German afternoon may have
risen 0.3-0.4% on the month for a year-over-year rate little changed from
June’s 1.5% pace. The eurozone aggregate
figure will be reported next week.
It is expected to be unchanged at 1.3% on the headline and 1.1% at the
core.
France’s Q2 GDP rose 0.5%,
matching the Q1 increase. This was sufficient to lift the year-over-year pace to 1.8% from 1.1%.
It is the fastest growth since Q3 2011. The improvement in net
exports appears largely offset by the decline in inventories. Consumption
was soft at 0.2%, (separately France reported a 0.8% decline in June
consumption, twice the decline expected). Spain’s GDP expanded 0.9% in
Q2, in line with expectations, and lifted the year-over-year pace to 3.1% from
3.0%.
matching the Q1 increase. This was sufficient to lift the year-over-year pace to 1.8% from 1.1%.
It is the fastest growth since Q3 2011. The improvement in net
exports appears largely offset by the decline in inventories. Consumption
was soft at 0.2%, (separately France reported a 0.8% decline in June
consumption, twice the decline expected). Spain’s GDP expanded 0.9% in
Q2, in line with expectations, and lifted the year-over-year pace to 3.1% from
3.0%.
We noted earlier in the week
that there were rising tensions between France and Italy. France had apparently taken credit
for developments in Libya that were
partly due to Italy’s initiatives. Those tensions intensified following
President Macron’s decision to block and Italian takeover of French shipyard company but nationalizing it. It had been
owned by a Korean company previously. While Macron’s honeymoon seems
over, Japan’s Abe failed to turn the tide of that has seen his public support
wane (a poll at the start of the week, put it at 26%, the lowest since he
returned to power in 2012). What was seen as an uninspired testimony before the Diet this week failed to lift
the cloud of scandal and misuse of power allegations.
A cabinet reshuffle is expected
next week, and the much-maligned defense
minister resigned earlier today.
that there were rising tensions between France and Italy. France had apparently taken credit
for developments in Libya that were
partly due to Italy’s initiatives. Those tensions intensified following
President Macron’s decision to block and Italian takeover of French shipyard company but nationalizing it. It had been
owned by a Korean company previously. While Macron’s honeymoon seems
over, Japan’s Abe failed to turn the tide of that has seen his public support
wane (a poll at the start of the week, put it at 26%, the lowest since he
returned to power in 2012). What was seen as an uninspired testimony before the Diet this week failed to lift
the cloud of scandal and misuse of power allegations.
A cabinet reshuffle is expected
next week, and the much-maligned defense
minister resigned earlier today.
The data focus in North
America is on GDP. The
US reports its first look at Q2 GDP. The Atlanta Fed’s GDPNow sees the
economy tracking 2.8% annualized growth. The NY Fed’s tracker put it at
2.0% at the end of last week. The median forecast from the Bloomberg
survey is 2.8%. Our own guesstimate
is a bit lower. In terms of
details, the consumer is expected to have recovered from the 1.1% pace in Q1 to
something close to 2.75%-3.0%. On the other hand, the deflator, including
the core PCE deflator may have softened considerably. For its part,
Canada reports May GDP. A 0.2% gain would lift the year-over-year rate to
4.1% from 3.3% in April. It would be the fastest year-over-year pace in
six years.
America is on GDP. The
US reports its first look at Q2 GDP. The Atlanta Fed’s GDPNow sees the
economy tracking 2.8% annualized growth. The NY Fed’s tracker put it at
2.0% at the end of last week. The median forecast from the Bloomberg
survey is 2.8%. Our own guesstimate
is a bit lower. In terms of
details, the consumer is expected to have recovered from the 1.1% pace in Q1 to
something close to 2.75%-3.0%. On the other hand, the deflator, including
the core PCE deflator may have softened considerably. For its part,
Canada reports May GDP. A 0.2% gain would lift the year-over-year rate to
4.1% from 3.3% in April. It would be the fastest year-over-year pace in
six years.
Dollar and Equities Closing Week on Heavy Note
Reviewed by Marc Chandler
on
July 28, 2017
Rating: