The unintended consequences from the trade taxes continues. In order to protect themselves from Chinese steel dumping in Canada with the US tariffs in place, Canada is now looking to put on steel quotas and tariffs on China. China of course will try to avoid US tariffs by shipping its steel first to someplace else. The EU is considering something similar.
With the tariff induced stock market pullback, Investors Intelligence said Bulls fell to 47.6 from 52 last week and that is a 6 week low while bears rose to a 4 week high at 18.4 from 17.6 last week. The Correction side rose to 34 from 30.4. There is still a wide spread between bulls and bears of 29.2 but is at a 6 week high. The spread got stretched again two weeks ago and that coincided with the end of the market bounce. Bottom line, sentiment is just chasing price.
Asian markets were red across the board as we wonder each day where all this trade stuff is leading us to. The Shanghai comp fell another 1.1%, the H share index was down by 2.2% while the Kospi was weaker by .4%. There is a shrinking number of global stock markets that are still green on the year. The MSCI global stock market EX US closed yesterday at the weakest level since August 2017. Also of note, the yuan continues to weaken, lower for the 8th day in the past 9.
MSCI global stock market index EX US
What’s most noteworthy in Europe today is the continued poor performance in European bank stocks. The Euro STOXX bank index is down almost 1% to the lowest level since December 2016. The last thing European bank stock investors wanted to hear from the ECB was that NIRP (started in June 2014) was going to stay with us for a long time. We know the XLF in the US closed down for the 12th straight day yesterday.
Euro STOXX bank index
With mortgage rates holding near 7 yr highs, mortgage applications fell on the week. Applications to buy a home fell 5.9% w/o/w and are basically flat y/o/y, up 1.2%. This component is now at a 4 week low. Refi applications were down by 3.5% w/o/w and lower by 27% y/o/y. This data comes before pending home sales today at 10am whose index topped out this cycle in April 2016.
With a new Italian government in place, regardless for now what might be implemented, helped to lift economic sentiment in June. The ISTAT index rose .8 pts to 105.4 after falling for 4 of the last 5 months. But the internals were very mixed. Weakness in manufacturing which fell to the lowest level since February 2017 (tariff worries?) was offset by gains in services and confidence for retailers (tax cuts?). Construction confidence was down. Italian bond yields are down today but only after a sharp rise in the past few days where the spread to German bunds blew out again.
As we get closer to another cut in ECB QE and banks start paying back outstanding LTRO loans, money supply growth in May improved to 4% y/o/y from 3.8% in April but this is a reduced pace from the 4.9% average in 2017.
There was a nice boost in UK retail sales in June. The CBI retail sales index jumped to 32 from 11 and that was well above the forecast of 10. CBI said “Higher than average temperatures seem to have had a positive impact on shoppers, with retailers benefiting from above average seasonal sales and improved order volumes growth. While today’s findings will bring some summer cheer to retailers, underlying conditions for the sector remain challenging – household spending remains under pressure from the slow recovery in real wage growth and the sector is still grappling with key structural changes like digital transformation.” The news did nothing for the pound which continues to trade poorly on Brexit worries.