Many Factors Weighing on World Stocks

October 13, 2016

Share prices around the Pacific Basin fell 1.6% in Hong Kong and India, 0.9% in South Korea, 0.7% in Australia, 0.5% in Indonesia, and 0.4% in Taiwan and Japan. Equities in Europe are so far showing losses of 1.6% in Greece, 1.3% in France, Germany and Italy, 1.1% in Spain, 0.9% in Switzerland, and 0.7% in the U.K. where sterling’s continuing depreciation of 0.2% overnight may soften any loss in competitiveness.

Investors have many concerns.

  1. Third-quarter U.S. corporate earnings are not going well. GDP growth last quarter seems closer to 2% than 3%.
  2. The release of Chinese trade statistics for September revealed a 10% on-year slump in exports versus a 2.8% drop in August and the biggest slide in seven months. Import growth returned to the red (-1.9%), and the trade surplus of $41.99 billion was 19.3% narrower than August’s and the smallest surplus since March.
  3. Divisions have surfaced among OPEC and other oil producers, suggesting the price may not stabilize at $50.
  4. Upbeat FOMC minutes released Tuesday underscored just how close a vote the September meeting produced. Dudley, a good bellweather, expects a rate hike this year. The juxtaposition of Fed tightening amid continuing weak global demand as embodied in the Chinese trade data is unsettling.
  5. Markets had been able to put Brexit concerns aside for a while because British data released in 3Q turned out better than feared, but worries have returned to the fore because Prime Minister Theresa May is handling the matter poorly and unprofessionally.
  6. It’s becoming apparent that Trump-led nativism isn’t going to fade even if the Republican candidate suffers a huge defeat in the November 8 election. Trump represents a grassroots movement insulated from any political condemnation. Regardless of the election outcome, America’s image has suffered enormous damage by highlighting the breadth of the citizenry willing to follow his lead, and he intends to remain a spokesman of that viewpoint for the foreseeable future. The Democrats would need to retake both the senate and house of representatives to mute Trump’s force as a major obstruction to any legislation.

Among 10-year sovereign debt yields, German bunds and British gilts are down three basis points apiece.

The dollar declined 0.5% overnight against the yen, which had traded Wednesday as weakly as 104.5/USD. The greenback otherwise is down 0.2% against the Swiss franc and 0.1% versus the euro and kiwi but up 0.1% relative to the Australian dollar and Chinese yuan. The latter hasn’t been as soft as now against the dollar since September 2010.

Gold advanced 0.6% to $1,261.30 per troy ounce. Oil slid 0.2% to $50.06 on WTI crude.

Japan’s tertiary index of service sector activity was unchanged in August following a 0.2% rise in July.

Japanese bank lending grew 2.1% on year in both September and 3Q, same as the year-on-year pace in the second quarter.

Food prices in New Zealand slipped 0.2% between August and September and recorded a mere 0.1% uptick from a year earlier. New Zealand’s purchasing managers index for September climbed 2.5 points to a six-month high of 57.7 in September. Consumer sentiment in New Zealand increased 1.6% this month on top of September’s advance of 2.8%.

German consumer prices went up 0.1% in September, lifting the 12-month increase to a 16-month high of 0.7% from 0.4% in the year to August. These results matched those in the preliminary release. In September, energy prices rose 0.7% on month, which sliced the 12-month decline to 3.6% from 5.9% in August and 7.0% in July. CPI inflation excluding energy rose to 1.2% after dropping to 1.1% in August from 1.3% in July.

Britain’s Royal Institute of Chartered Surveyors released its monthly house price balance index, which improved to 17% in September from 13% in August and 5% in July but remained will below a reading of 44% in September 2015.

The Bank of Korea kept its central bank interest rate unchanged at the record low of 1.25%. Monetary officials had cut the rate by 25 basis points this past June and by 100 bps between August 2014 and mid-2015.

The National Bank of Serbia retained a 4.0% interest rate. Cuts of 25 basis points earlier this year were implemented in February and July. The rate had been slashed by 3.5 percentage points during 2015.

U.S. new jobless insurance claims totaled just 246K last week, the same amount as in the previous week. U.S. import prices ticked up just 0.1% in September. The 12-month rate of decline nonetheless was halved to 1.1% from 2.2% in August. In the year to September 2016, import prices had plunged 11.6%.

Bob Dylan has won the Nobel Prize in Literature. His song, Like a Rolling Stone, was selected number one by Rolling Stone Magazine list of 500 songs of all time, and he had more entries in that list than any other single-performing artist and third-most overall behind only the Beatles and The Rolling Stones.

Once upon a time you dressed so fine
Threw the bums a dime in your prime, didn’t you?
People call say ‘beware doll, you’re bound to fall’
You thought they were all kidding you
You used to laugh about
Everybody that was hanging out
Now you don’t talk so loud
Now you don’t seem so proud
About having to be scrounging your next meal.

How does it feel, how does it feel?
To be without a home
Like a complete unknown, like a rolling stone.   -Bob Dylan, 1965

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

 

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