Market news

Bloomberg.com — Risks to Canada’s financial system from elevated consumer debt and house prices are easing, the central bank said, while the “sheer size” of what families owe means the danger will persist for some time.

Stricter mortgage rules including a broader stress test that began in January appear to deterring some of the riskiest borrowers, the Bank of Canada said in a Financial System Review. Price gains for single-family homes in Vancouver and Toronto have also slowed “markedly,” the report said.

“The two main vulnerabilities we have been watching closely are showing continued signs of easing, which is encouraging,” Governor Stephen Poloz said in a statement Thursday from Ottawa. “Higher interest rates and the changes to the mortgage guidelines have reduced credit growth and improved the quality of new lending.”

Canada’s economy has been powered for the last decade by debt-fueled consumer spending, leading to a surge in home prices, particularly in Toronto and Vancouver. That’s led to concerns about the risks of high debt levels in an environment where interest rates are rising.

Poloz has raised rates three times since last summer and investors predict the 1.25 percent benchmark will climb again at the next meeting in July. […]

Bloomberg.com — Euro-area exports fell for the first time in five years at the start of 2018, dragging on economic growth, which slowed sharply in the period.

Updated first-quarter GDP data showed that government spending stagnated in the three months through March, while exports fell 0.4 percent and net trade proved a drag. The economy expanded 0.4 percent, down from 0.7 percent at the end of 2017, in line with the initial reading from the Eurostat office. […]

Investing.com – Prime Minister of Canada Justin Trudeau said yesterday about the rejection of the replacement in the long term of the North American Free Trade Agreement (NAFTA) on a bilateral trade pact with the United States.

On different occasions, we  heard how the President (US Donald Trump) talked about the interest … in a bilateral agreement, instead of the tripartite NAFTA, what we have now”, the Western media quoted him.

“Canada’s position is and always will be that the tripartite approach is indeed better for Canada, Mexico, and the United States,” he added.

Earlier, Western media reported with reference to US economic adviser Larry Kudlow that D. Trump is inclined to the option of negotiating separately with Canada and Mexico in order to settle trade disagreements.

Revision or rejection of NAFTA is one of the election promises of D. Trump. In his opinion, the agreement in its present form is unprofitable for the United States.

Investing.com – China would like to avoid escalating tensions in trade and economic relations with the United States, and is ready to increase imports of American goods, said the representative of the Ministry of Commerce of China, Gao Feng.

As he said at a briefing for journalists last weekend, Liu He, Vice Premier of the State Council of the People’s Republic of China, met with US Trade Minister Wilbur Ross, the parties discussed in detail issues related to China’s purchases of agricultural products and energy products in the US, noting that “certain progress”.

“There was a discussion of issues related to specific areas of cooperation, including in-depth talks on agriculture and energy, China is ready to import more goods from the US,” the official said.

As previously reported by the Wall Street Journal, China offered to increase the purchase of US agricultural commodities and energy resources worth about $ 70 billion a year if US President Donald Trump refuses announced plans to impose protective duties on a number of Chinese exports.

According to sources, during the negotiations with W. Roth, the Chinese side put out a package of proposals, which stipulates, inter alia, an increase in purchases by Chinese companies of American soybeans, corn, natural gas, oil and coal, as well as other agricultural products and energy carriers.

According to estimates by China and the United States, the volume of purchases of these goods by China within one year will be about $ 70 billion.

US President Donald Trump insists that the PRC authorities commit themselves to take steps that would allow the US side to reduce the $ 200 billion deficit of trade in goods with China, currently at about $ 375 billion.

Beijing, however, believes that achieving such a goal will take a long time.

Bloomberg.com — A global stocks rally extended its run in Asia Thursday on confidence the global economic expansion remains intact and continuing momentum in U.S. technology shares. Treasuries held losses, with 10-year yields just under 3 percent.

Equities gained from Tokyo to Sydney after the S&P 500 Index rose for a fourth consecutive day and the Nasdaq Composite Index chalked up another record high. The dollar slipped, on course to fall for a third day out of four. Record American exports helped shrink the U.S. trade deficit in April, data showed Wednesday, underscoring forecasts for robust second-quarter growth. The Australian dollar dropped as the nation’s trade surplus shrank more than economists forecast.

European markets had come under pressure, with the region’s bonds sinking and stocks fluctuating on signs that the European Central Bank is ready to discuss an end to quantitative easing.

The return of risk appetite comes as investors get used to the on-again, off-again threat of protectionism. They’ll now look ahead to the Group of Seven meeting this week for further developments on the trade front, as well as to this month’s meetings of both the Federal Reserve and the European Central Bank for more clues on monetary policy. ECB chief economist Peter Praet on Wednesday confirmed next week’s gathering will be pivotal for a decision on when to end its bond-buying program, sinking the region’s bonds.

The renewed rally in global stocks has revived warnings in some quarters that investors are ignoring risks ranging from central banks’ shift to quantitative tightening to trade tensions and excess American borrowing.

“It’s the most insanely overpriced market since March 2000,” David Stockman, U.S. budget director in the Reagan administration, said on Bloomberg Television. He said stock buybacks have created an artificial support for U.S. equities.

Elsewhere, oil pared losses from a U.S. government report showing a surprise increase in domestic crude stockpiles. Indian bond yields jumped after the Reserve Bank of India raised its key rate for the first time since 2014. […]

Bloomberg.com — Emerging markets struggling with higher U.S. interest rates are likely to get little sympathy from the Federal Reserve.

Emerging-market currencies have been hammered in a spreading selloff amid worries that their economies won’t cope with higher U.S. borrowing costs. That’s prompted central bankers in India and Indonesia to urge Fed caution, while officials in Brazil are warning of challenging times.

There are few signs such concerns will steer the Fed away from its course for at least two and possibly three more rate hikes this year, including a move at its policy meeting next week.

Chairman Jerome Powell explicitly pushed back against criticism early last month in Zurich, saying the role of U.S. monetary policy on foreign domestic financial conditions was “often exaggerated.” His colleague, Governor Lael Brainard, mentioned emerging markets in a May 31 speech, but spent far more time discussing the upside risks posed by fiscal stimulus.

“I don’t think they can change policy based on fear,” said Bricklin Dwyer, senior economist at BNP Paribas in New York. Emerging-market turmoil “is noise right now, justifiable noise. But does it shift the outlook for the U.S? The answer is, not yet.”

The U.S. economy is powering ahead, adding over a million jobs in the first five months of 2018. Inflation is at the central bank’s 2 percent target, and the Atlanta Fed’s gross domestic product tracking model suggests the economy grew a strong 4.5 percent in the second quarter. […]

Investing.com – The growth rate of consumer prices in Switzerland in May 2018 increased to 1% in annual terms after an increase of 0.8% in April, according to official data. This level of growth has become the highest since March 2011. Analysts on average expected acceleration to 0.9%.

In comparison with the previous month, prices in Switzerland increased by 0.4% in June, twice as fast as in May.

At the same time, core CPI growth rates remain substantially weaker (0.4% in annual terms), as the main contribution to growth was made by fresh and seasonal food and fuel.

Goods imported to Switzerland, on average, increased by 2.7% compared to May 2017, while Swiss products increased by 0.4%.

Investing.com – Australia’s GDP in the first quarter of 2018 increased by 1% compared to the previous quarter, which recorded an increase of 0.5%, according to official data. The market expected the Australian economy to increase by 0.9% in January-March.

In annual terms, the GDP of Australia increased by 3.1% in January-March after a 2.4% rise in the previous quarter, the average forecast of economists was 2.8%. The rise of the indicator was a record since the second quarter of 2016.

Consumer spending increased by 0.3% quarter-on-quarter, while government spending jumped by 1.6%, and capex business by – 1.3%.

• Australian exports increased by 2.4%, imports increased by 0.5%.
• The Australian dollar rises in price to the US dollar on GDP data.

Bloomberg.com — A 2 percent on-year jump in overall cash earnings in March — the biggest in years — had raised expectations of increasingly robust gains to come, but cash earnings in April rose a more moderate 0.8 percent. A labor ministry official said bonus payments had inflated the March figure.

In fact, base pay rose a solid 1.2 percent — the same as the revised figure for March. And economists expect continued gains ahead.

Yet the bottom line is that Japanese consumers are unlikely to start splurging in the near future. In fact, household spending fell for a third-straight month in April, according to data released this week. That’s not helpful for a Bank of Japan still struggling to reach 2 percent inflation after five years of extraordinary stimulus.

Marcel Thieliant, senior Japan economist at Capital Economics, estimated that wages need to grow by 2.5 percent for inflation to hit 2 percent on a sustained basis.

“We estimate that the jobless rate would have to fall to 1.5% for wage growth to be this strong, which will take a few more years,” he said in a note. “The upshot is that monetary policy tightening remains a long way off.”