As the world awaits the next crisis, trouble is now spreading across the globe.
Weakness In Japan & Germany
August 9 (King World News) – Here is a portion of what Peter Boockvar wrote today as the world awaits the next round of monetary madness: The always volatile Japanese machine orders in June fell 8.8% m/o/m, much worse than the estimate of down 1% and follows a 3.7% drop in May and a 10.1% spike in April. While as stated this number jumps around a lot, we can’t dismiss the weakness because it coincides with a softening seen in manufacturing confidence where the last Japanese Markit PMI for July was the lowest since last August…
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Boockvar continues: As for the global manufacturing PMI we saw it last week drop to a one year low too. Whether it’s concerns with tariffs and/or something else, a pause on spending in Japan is taking place. We also saw this weak softness in the German factory order and IP data. JGB yields were little changed with the 10 yr at .115% and the 40 yr yield down 1 bp and back below 1.0% and .99%. The yen is down slightly as was the Nikkei.
Price Pressures In China
China reported its inflation data and both CPI and PPI came in one tenth more than forecasted. CPI for July rose 2.1% y/o/y vs 1.9% in June. Inflation ex food and energy held at 1.9% for the 3rd straight month. As for producer prices, they were up by 4.6% y/o/y vs 4.7% in June. The price pressures here came from higher prices in mining, raw materials and manufacturing. Price gains were up a more modest .6% y/o/y for consumer goods.
Bottom line, nothing in the data will prevent the Chinese from trying to thread a needle of boosting growth thru easing of monetary policy at the same time trying to slow the pace of credit growth and dealing with the instituted and soon to be implemented new tariffs against them. The Shanghai comp did rally 1.8% today after falling by the same amount yesterday. The yuan is also up and Chinese bond yields are rising too as PPI in particular is holding up more than thought. Helping stocks was a report that the China Securities Regulatory Commission was going to further open up its markets to foreign investors.
Trouble In Turkey And A Falling Ruble
While I expect the goings on in Turkey to remain contained to Turkey (the recent problem is the US sanctions against it), it is becoming such a financial mess there that we still have to be on watch for any contagion in terms of risk behavior in other emerging markets. The lira is tanking again by 2.2% to a fresh record low vs the US dollar. The Turkish central bank needs to Volckerize monetary policy, ignore the political pressures and sharply raise rates again to stem this plunge which is creating a major inflation problem.
Dealing with inflation at a 5 yr high, the Philippines central bank hiked rates by an unexpected 50 bps to 4%.
The Russian ruble is falling to the lowest level since November 2016 in response to the newly induced sanctions.
In the US, we await July PPI today and CPI tomorrow. Both headline and core PPI are expected to hold at the June levels of gains of 3.4% and 2.8% y/o/y. That headline gain was the quickest since November 2011.
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