Monday’s Spotlight on Politics and Central Banks

September 25, 2017

Saturday’s parliamentary election in New Zealand resulted in a hung parliament. The center-right National Party of Prime Minister English took a 46.0% plurality of the popular vote (58 of 120 seats) and will need to cobble together a coalition with smaller parties to form a government. Labour won 35.8% of the vote, good for 45 seats.This may take some time, and the kiwi fell 0.7% overnight in response.

Angela Merkel won a fourth term as German Chancellor on Sunday, but her CDU/CSU party took only 34.5% of the popular vote (218 seats, it appears), and that’s its lowest share since the 1949 election. The left-of-center Social Democrats lost big with just 20.4% of the vote, down from 25.7% and worst since WW2. The big winner was the far-right, anti-euro and anti-immigration AFD, which was formed in 2013 and captured 13.0% of the vote. Germany will have a far-right party represented in parliament for the first time since the Third Reich. Merkel is expected to form a coalition with the Free Democrats and Greens, who together won 144 seats.

Snap elections in Japan were called by Prime Minister Abe. Parliament there will be dissolved on September 28, and the lower house election will probably take place on October 22. An election didn’t have to be called before next year, but Abe isn’t letting an opportunity go to waste. Corruption scandals had weakened his standing, but the shadow of a bellicose North Korea has revived the popularity of Japan’s nationalist prime minister, who wants to end constitutional constraints on the military. Abe also announced a JPY 2.0 trillion fiscal spending supplement.

U.S. President Trump fired off many provocative tweets over the weekend, intended to please his steadfast voter base and frustrate just about everyone else.

Bank of Japan Governor Kuroda and ECB Vice-President Constancio spoke overnight. Kuroda reiterated that it’s too early to talk openly about an exit plan from the very stimulative policy stance but also said their are limits to how negative interest rates can go. Constancio ridiculed the bitcoin as an unsuitable substitute for money. Many Fed officials will be speaking publicly this week, and ECB President testifies before the EU parliament.

The dollar climbed 0.6% against the euro overnight on concern about the strong performance of the nationalist AFD party in Sunday’s German election. The ten-year German bund yield fell four basis points, and its British counterpart is down two basis points.

The dollar otherwise appreciated 0.5% against the yuan and 0.3% relative to the Swiss franc and sterling, but it is unchanged against the yen and Aussie dollar and 0.1% softer relative to the loonie.

In stock markets around the Pacific Rim, there were losses today of 1.1% in Taiwan, 0.9% in India, 2.4% in Hong Kong and 0.3% in China and Indonesia, but Japan’s Nikkei closed 0.5% higher. ┬áThe German Dax firmed 0.2%, but the Greek and Spanish markets have slumped by a deep 1.7% and 0.8%. South Africa is observing Heritage Day.

Comex gold is unchanged. West Texas Intermediate crude oil rose 0.5% to $50.90 per barrel.

Japan’s latest manufacturing purchasing managers index rose another 0.4 points according to the preliminary estimate to a 4-month high of 52.6. Input price inflation accelerated in September.

Japan’s index of leading economic indicators printed at 105.2 in July, half a point lower than in June but half a point above the level in May. The indices of coincident economic indicators and lagging economic indicators were at 4- and 6-month lows, but the former’s trend designation remained “improving” as such has been deemed since last October.

The German business climate index, compiled by the IFO Economic Institute, fell unexpectedly by 0.7 points in September to a 3-month low of 115.2, with both current conditions and expectations below August levels but still well above their long-term averages. Construction and retail improved, but manufacturing and the wholesale sector were less buoyant than in the prior month.

Producer prices in the year to August rose 3.8% in Finland and 3.2% in Spain. Each of these results constituted an acceleration from July.

The Swiss current account surplus of CHF 18.75 billion in 2Q17 was 55% wider than in 1Q. The surplus this year will likely approach 10% of Swiss GDP.

On-year growth in Austrian industrial production climbed to 5.7% in July from 5.1% in June and 4.8% in May.

Consumer sentiment and business confidence each picked up this month in the Czech Republic. The overall economic climate index reached an 8-month high.

Scheduled U.S. data releases today include the Dallas Fed manufacturing index and the Chicago Fed National Activity index. Evans and Dudley, presidents of the Chicago and N.Y. Federal Reserves, speak today. Yellen is on tap tomorrow.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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