Archives of “May 2019” month

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US Q1 GDP (second reading) +3.1% vs +3.0% expected

  
Analysis, Economy

US GDP chart

  • Personal consumption +1.3% vs +1.2% initially
  • Q4 personal consumption was +2.5%
  • Consumer spending on durables -4.6% vs -5.3% initially
  • Business investment +2.3% vs +2.7% initially
  • Business investment on equipment -1.0% vs +0.2% initially
  • Home investment -3.5% vs -2.8% initially
  • Exports +4.8% vs +3.7% initially
  • Imports -2.5% vs -3.7% initially
  • Net trade added 0.96 to GDP vs 1.03 pp in initial estimate
  • Business inventories add 0.6 pp to GDP
  • Q1 corporate profits after tax -3.5%
  • GDI +1.4%
  • GDP price index +0.8% vs +0.9% initially
  • Core PCE q/q +1.0% vs +1.3% initially
The drop in business investment and investment in equipment is unwelcome but there isn’t a big different between this report and the advance look. I don’t see anything that would impact any estimates of Q2 GDP.
The drop in inflation is beginning to get worrisome and if Q2 is soft, the Fed may use inflation as a reason to cut rates later in the year.

China reportedly puts US soy purchases on hold as trade war escalates

  
  Analysis

Bloomberg reports

The report says that China has put purchases of American supplies on hold amid the recent escalation in the trade war between the two countries, according to people familiar with the matter. The only bright side is that China is said to have no plans to cancel previous purchases of American soybeans.

US soy
American soy sales to China had been recovering over the last few months but given the breakdown in trade talks and that both sides have reset their stance in the standoff, the act of goodwill during negotiations is likely not to continue.

Bund futures: set to print all time highs

  
Analysis, Forex

Yesterday Bund futures rose above 168, which is close to the all time high seen in June 2016 of 168.86 and it is also close to the R3 pivot point on the daily chart. There is a number of factors likely to keep pushing on Bund futures:

  1. Germany: Angela Merkel is making her domestic presence felt as she acts to steady the ship. This means that sensible fiscal foundations will stay for the next couple of years.  Merkel has resolved to stay out her current term providing stability.
  2. Italy: the Italian Deputy Prime Minister Salvini is spoiling for a fight with the EU again. Salvini said that the European Commission could impose a €3bln fine on Italy for breaking EU fiscal rules. Other reports note that the Commission is ready to start disciplinary actions against Italy on June 05. Matteo Salvini said, ‘let’s see if we get this letter where theuy give us a fine for debt accumulated over the past and tell us to pay 3 billion euros’. Salvini’s party was very successful in the European elections and he pledged to, ‘use all his energies’ to fight European fiscal rules. He is in a bullish mood.
  3. EU: Senior European Jobs are up for change, including the name of Mario Draghi’s successor,  and this is set to carry on until the end of June.

All of the above making Bund futures a buy from support.

Nikkei 225 closes lower by 0.29% at 20,942.53

  
Analysis, Global Indices

Tokyo’s main index closes lower but it belies underlying risk sentiment

Nikkei 30-05

Asian stocks may be trading lower on the day but it’s more of a reflection of overnight trading in Europe and US because sentiment is faring slightly better in general today. US equity futures are trading up by 0.2% and European equity futures are also signaling slightly more positive tones at the open later.

More importantly, bond yields are holding steady for the most part with US 10-year Treasury yields up 0.5 bps at 2.266% currently. That is helping USD/JPY inch higher towards 109.70 but do be aware that there are also large expiries resting at 109.75 today that could help to limit gains alongside swing region resistance.

PBOC’s Sun says that China’s economy is stable despite global uncertainties

  
Analysis, Economy

Comments from PBOC’s head of monetary policy, Sun Guofeng

  • China’s monetary policy is appropriate this year
  • Relatively slower money supply can still meet economic needs
More of the usual coming out from Chinese officials. When looking at these comments, it’s more to do with the timing and frequency that they are released rather than the words itself. Chinese stocks are taking a bit of beating today with major indices down by nearly 1% now so you could make a case that there will be more soothing words to follow to ease the jitters seen so far in trading this week.

Japan PM Abe says that he spent a lot of time discussing China with Trump

  
  Analysis

Comments by Japanese prime minister, Shinzo Abe

Not sure why Abe is bringing that up but perhaps Trump is testing waters to see what Abe and Japan are in agreement with, on his actions towards China on issues such as an exchange rate pact. Meanwhile, Japan’s economy minister, Toshimitsu Motegi, says that trade talks with the US have “got off to a good start”. Sure…

FT reports on futures exchanges efforts to install ‘speed humps’ to slow high frequency traders

  
  Analysis

Deutsche Börse’s Eurex will start a pilot scheme next week that introduces tiny delays to the trading of options on French and German stocks

  • The London Metal Exchange is also set to receive approval for a similar initiative
  • two weeks ago US regulators approved Intercontinental Exchange, the second-largest US futures operator, to apply delays on trades of two precious metals contracts
The moves are hotly debated.
For:
  • “[Futures] markets exist for the transfer of risk by increasing liquidity,” said Carl Gilmore, president of Integritas Financial Consulting in Chicago, who is a supporter of speed bumps. “If it draws people in, it makes the markets fairer. If they’re perceived to be unfair, then something needs to be done to correct that perception,” he said.
Against:
  • “The goal of financial markets is not to protect or shelter the less informed,” said Brian Quintenz, a Commodity Futures Trading Commission commissioner who opposed the agency’s approval of speed bumps for ICE. “Market efficiencies are earned – they are created through research, investment, and intellectual property.”
Financial Times piece here for more, may be gated
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