Date: July 27, 2018
United States:
Trump Predicts Data Will Show U.S. Economy in ‘Terrific’ Shape
President Donald Trump predicted data on Friday will show the U.S. economy is in “terrific” shape amid forecasts that growth topped 4 percent in the second quarter, the fastest since 2014. Speaking at a steel mill in Granite City, Illinois, on Thursday, Trump doubted the expansion would reach the 5.3 percent some economists have penciled in, but said that “if it has a four in front of it, we’re happy.” He called recent economic figures “unthinkable.” Gross domestic product expanded at a 4.2 percent annualized rate in the April-June period, according to the Bloomberg survey median, with forecasts ranging as high as 5 percent. The Commerce Department will release the statistics at 8:30 a.m. in Washington. Among the forces behind the pickup from 2 percent growth in the first quarter is the biggest tax overhaul since the Reagan era boosting company and corporate spending. The traditionally volatile categories of inventories and trade also probably lifted the number — helped by a likely temporary jump in soybean exports ahead of retaliatory tariffs Analysts aren’t convinced the acceleration will last, predicting solid yet less spectacular growth in the second half of the year as the tax stimulus begins to fade, the Federal Reserve raises borrowing costs again and the expansion ages. The simmering trade war with China will also weigh on the economy. At Bloomberg Economics, economists Carl Riccadonna and Tim Mahedy estimate growth of 3.8 percent in the quarter. “This reflects a number of one-time idiosyncratic factors and should not be viewed as an indication of what is to come in the second half,” they wrote in a report. Trump said a number just short of 4 percent would also “OK.” The president’s comments follow a June 1 tweet that caused a stir ahead of jobs data, when he said he was “looking forward to seeing the employment numbers at 8:30 this morning.” Because the administration’s economic team receives key economic figures under embargo the afternoon before the report, his optimism was a market-moving tell, and strong figures followed one hour after the tweet. Under government policy, the chairman of the White House Council of Economic Advisers is given sensitive numbers such as jobs and GDP the day before the official report, and he or she can brief the president. After that, everyone privy to the data is barred from publicly commenting on it until an hour after the figures are released. Keeping the information under embargo is meant to prevent advantaged trading on some of the most market-moving reports in the world. Trump said on Thursday he didn’t know the details of the report on gross domestic product.
Dollar Steady, Stocks Gain With U.S. GDP in Focus: Markets Wrap
The dollar and Treasuries were little changed as traders awaited the release of data which President Donald Trump predicted will show the U.S. economy is in “terrific” shape. U.S. equity futures pared gains as European stocks climbed, with corporate earnings again taking a front seat. Futures on the S&P 500 and Nasdaq pointed to a marginally higher open even as Twitter Inc. tumbled in pre-market trading after saying monthly users had missed estimates. The Stoxx Europe 600 Index headed for its best week in almost two months as banks and telecommunications firms gained, with BT Group Plc and Banco Bilbao Vizcaya Argentaria SA reporting earnings that exceeded analysts’ estimates. In Asia, Japanese equities climbed for a fourth day, while benchmarks in China and Hong Kong ticked lower. The euro slipped after disappointing economic data from France, the region’s second-biggest economy. All eyes are on earnings as Amazon.com Inc.’s strong results Thursday countered Facebook Inc.’s disappointing quarter, which led to a historic plunge for the social media goliath. Aside from corporate balance sheets, traders are cheering the apparent cease-fire over tariffs between Europe and the U.S., while central banks also moved back into the spotlight. U.S. GDP data Friday may show the world’s biggest economy had expanded at the fastest quarterly pace since 2014 in the three months through June, providing support for the Federal Reserve’s policy-tightening path. In Japan, reports suggested BOJ officials are debating ways to reduce the side effects of their yield-curve control policy. The ECB said Thursday it will stick to its plan to end bond purchases and pledged to keep interest rates unchanged “at least through the summer of 2019.” Elsewhere, West Texas crude erased a gain as an unexpected halt in Saudi shipments via a Red Sea waterway was seen as short-lived. Emerging-market stocks rose for a fourth day, heading for a one-month high. The Turkish lira dropped for a second day after President Trump threatened sanctions if the nation doesn’t release an American pastor.
Europe:
Russia Extends Rate Pause as Risks to Inflation Halt Easing
Russia’s central bank kept interest rates unchanged for a third consecutive meeting and warned that external risks and the highest inflation expectations in almost a year mean monetary easing probably won’t resume until 2019. The benchmark was held at 7.25 percent, according to a statement on Friday. The decision was forecast by all 37 economists surveyed by Bloomberg. The central bank said the balance of risks has become pro-inflationary, making it “highly likely” that its policy will shift to a neutral stance only next year, a transition it previously wanted to complete in 2018. Investors are focusing on Russia’s rate path after government measures such as a plan to raise value-added tax complicated the central bank’s efforts to keep inflation near its target of 4 percent. With global trade tensions flaring and a standoff against the U.S. showing little sign of abating, policy makers warned that developments abroad will shape their decisions alongside the VAT increase. “Uncertainty persists over how strongly the tax measures may affect inflation expectations and how the external conditions will develop,” the central bank said in the statement. “Given the effect of the planned fiscal measures on inflation and inflation expectations, monetary conditions should remain to some extent tight to limit the scale of secondary effects and stabilize annual inflation close to 4 percent over the forecast horizon.” The Bank of Russia is on track to transition to a “neutral” stance — which it previously described as a nominal key rate of 6 percent to 7 percent — when monetary policy doesn’t contribute to a slowdown or acceleration of inflation relative to the target. Its assessment of the neutral rate is “closer to the upper bound” of the range after U.S. sanctions touched off ruble volatility in April and gasoline prices jumped in May. “The timeline is totally opaque now for when exactly in 2019 the central bank will cut rates,” said Vladimir Miklashevsky, a senior economist at Danske Bank in Helsinki. “From now on, we need a global miracle to see a softer Bank of Russia in 2018.” Five analysts still predict a quarter-point rate cut this quarter, according to a separate Bloomberg survey conducted this month.
Asia:
Asia’s Worst Equities Market Shows Signs of a Comeback
Philippine stocks are heading for the sharpest monthly gain in more than two years as foreign funds start trickling back into a market that was among the world’s worst performers in the first half of the year. The benchmark Philippine Stock Exchange Index has gained 6.6 percent in local currency terms so far this month, among the world’s five best performers. The gauge, which tumbled 16 percent in the first half and sank into a bear market in June, has rallied more than 3.9 percent in three days as overseas investors turned net buyers this week following a record 25 straight weeks of withdrawals. “Foreign funds have started coming back as investors have realized there’s value in the market,” said Alfred Dy, research head at CLSA Philippines Inc., the nation’s largest foreign broker. “There’s still room for more gains because in spite of the bounce there is still value on the table.” Philippine stocks are trading at 16.47 times 12-month estimated earnings and while that has gone up from 15.1 times in June, the multiple is still more than one standard deviation below the 17.75 times five-year average. Still, Morgan Stanley strategist Sean Gardiner advises investors to stay underweight on Philippine equities as the market is fairly valued relative to its 10 to 25 year average. “A more substantial re-rating in P/E valuation is difficult given global tightening, rising earnings risk and reduced domestic liquidity,” according to a June 26 note he wrote with analyst Aarti Shah. Overseas investors bought $19.45 million of Philippine shares this week, as they also picked up shares in other Asian markets such as Thailand and Indonesia. They bought $12.06 million on Thursday, the most since Jan. 17. The trend is welcome news for the Philippines after it saw international funds unload $1.3 billion of stocks this year, exceeding the record $1.19 billion withdrawn for all of 2015. They had sold shares amid fears of a weakening peso, rising inflation, a trade war between the U.S. and China, and a general selloff in emerging markets. Dy, rated the top Philippine equities strategist by Asiamoney from 2010 to 2017, said the central bank’s stance on inflation next month will be a key factor that could boost stocks. Progress on the government’s tax reform and its plan to remove caps for rice imports will be additional catalysts, he said.