Fingers crossed on the meeting between EC President Juncker and President Trump and that something productive comes of it. I like the suggestion of no tariffs anymore on either side.
At least at the wholesale level, price pressures continue to grow in parts of Europe. The PPI in June in France rose 3.4% y/o/y up from 3% in May. That is two tenths from matching a 6 year high. In Spain, PPI rose 4.1% y/o/y, up from 3% in May and the most since May 2017. In Sweden, which still has negative interest rates along with the eurozone, PPI spiked 8% y/o/y. As the market focuses much more so on consumer price data, none of these figures are moving bond markets in Europe.
In Germany, the IFO business confidence index for July was little changed at 101.7 vs 101.8 in June but that was a touch above the estimate of 101.5. There was a slight .1 pt gain in the Current Assessment and a .3 pt drop in Expectations. The IFO said simply, “The German economy continues to expand, but at a slower pace.” The manufacturing component fell for the 6th straight month. Thanks to Draghi and the ECB, the component that continues to be the bright spot is construction and real estate. This component rose to a record high. The euro is up a bit and back above $1.17 with the better than feared figure. German bond yields are little changed while the DAX is down about .50%, weighed down by the auto’s.
The ECB reported a pick up in money supply growth in June of 4.4% y/o/y, above the forecast of up 4%. Loan growth to non financial companies picked up to 4.1% y/o/y from 3.7% in May and that is the best this cycle. Household lending growth stayed at 2.9% y/o/y. GDP growth in the region should be around 2% this year, slower than the pace seen in 2017 but still a good performance. The ECB meets on Thursday and this data should make Draghi more confident with his plan to cut QE again in October and end it for good by year end.
Lastly in Europe, the UK CBI retail sales data was better than expected at 20 for July vs the estimate of 15 but that is still down from 32 in June. CBI said “While the heatwave has boosted retail sales in recent months, we may be seeing some early signs of a cooling off, with orders falling in the year to July an retailers expecting no growth in sales next month. Indeed, the long term challenges facing the retail sector are significant. Continually subdued real wage growth means that households are still feeling the pinch, and retailers are still grappling with deeper structural issues, such as digital disruption.” The pound is little changed as are gilt yields but the FTSE 100 is lower by .6% and is again negative on the year. The BoE will very likely hike rates by 25 bps next week.
After a sharp two day selloff, Japanese JGB’s did bounce overnight. The 10 yr yield fell 1 bp and the 40 yr was down by 3 bps. The BoJ meets next week and it should be an interesting get together. The other wild market, that being the Chinese yuan, saw a rally in it but the Shanghai comp was unchanged.
Mortgage applications in the US were little changed w/o/w. The purchase side fell 1% w/o/w but are still up 2.2% y/o/y. Refi’s were up .9% w/o/w but still down 30% y/o/y. As this data is as of July 20th, it did not capture the spike in rates over the past few days. We see new home sales today and I believe it has become more clear that home prices have reached a point that it’s dissuading interested buyers and resulting in a slowdown in the pace of transactions.