With what promises to be an acrimonious G7 meeting, from which the isolated US President will depart early, and a broadening pressure in emerging markets, the US dollar turned better bid late yesterday and is recovering further today. Disappointing April industrial production figures in Germany and France did not do the euro any favors. Sterling is faring better than the euro after Prime Minister May survived yet another mini-crisis within her cabinet.Also at Marc to Market:
Japan failed to revise higher its initial estimate that Q1 GDP contracted 0.6% at an annual pace. The composition was changed, however. Consumption was shaved, while business spending was revised higher. Separately, Japan reported a somewhat smaller than expected April current account surplus. More interesting for investors was the portfolio flow data contained in the balance of payments report.
In April, following the Italian election in early March, Japanese investors bought JPY196.4 bln (~$1.8 bln) of Italian bonds, the most in two years. Japanese investors also bought the most Spanish bonds since at least 2005 (~JPY350 bln), though note that this may include some non-sovereign Spanish paper as well. Japanese investors continue to buy French bonds (~JPY218 bln). They also bought nearly JPY172 bln US bonds. The bulk of these purchases were financed by the liquidation of German Bunds, of which Japanese investors sold JPY685 bln. Some of the pressure on the euro in recent weeks was thought to be related to the decision to boost the currency hedge ratio on EMU assets.
China reported a May trade surplus of just less than $25 bln after the $28.8 bln surplus in April was revised to $28.3 bln. Exports were steady, rising 12.6% from a year ago, the same as in April, after the revisions. However, imports surged 26% but were expected to have slowed after the 21.5% rise in March. Meanwhile, the US-Chinese trade tensions come to a head next week. The US is expected to specify the $50 bln goods that will be hit with an extra 25% tariff for the intellectual property dispute. China has said that if the US goes through with this, its trade concession offers will be retracted.
Germany reported a smaller trade surplus for April. The 20.4 bln euro surplus contrasts with March's 25.2 bln euro surplus. Here too it was mostly a function of rising imports (2.2% vs. -0.2% in March), but exports also fell (-0.3% vs. 1.7%). This follows yesterday's news of an unexpected fall in factory orders and today's surprisingly poor industrial output figures. Industrial production slumped 1% in April, and even though the March series was revised higher (1.7% from 1.0%), the overall tone was disappointing, and this euro retreated on the news.
France also missed on its April industrial production report. It fell 0.5% in contrast to expectations of a 0.3% rise. It follows a 0.4% decline in March and is the first back-to-back decline since Sept-Oct 2016. If there was a silver lining, it was the manufacturing edged up (0.4%) after the March report was revised to 0.3% from 0.1%.
The US dollar is paring this week's losses against most of the major currencies. The yen is the only currency gaining on the dollar today and for the week, and the Canadian dollar and Australian dollars are the only major currencies the greenback has gained against this week, coming into the North American session. The euro has approached initial support near $1.1750, where the five-day moving average is also found, after probing as high as $1.1840. The euro has not closed below its 5-day moving average since it bottomed on May 29 near $1.1510. We suspect upticks toward $1.18 will be sold....MORE
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