Market Pessimism Intrudes

October 19, 2017

Yesterday’s stock market optimism swung into reverse.

  • Data showing softer Chinese growth in 3Q hit the Hong Kong market, where the Hang Seng index fell 2.2%.
  • The Spanish government of Prime Minister Rajoy invoked previously unused constitutional powers to revoke Catalonia’s autonomy. In response, stocks in Europe are down 2.2% in Greece, 1.3% in Italy, 0.9% in Germany, 0.8% in Spain, 0.7% in Switzerland and 0.6% in the U.K. and France.
  • Futures trading point to a likely sharp decline in U.S. tech stocks when U.S. trading opens.

The kiwi fell over 1% on unexpected news that New Zealand’s new coalition government will be led by the Labour Party.

Today is the 30th anniversary of the New York Stock Exchange’s worst day. The DOW plunged 22.6%, or 508 points to 1,738, on October 19, 1987.

Korean monetary policy is inching closer to a turning point. The Bank of Korea’s policy interest rate was left after today’s review at 1.25%, its trough since a 25-basis point cut in June 2016. However, one policymaker voted to raise the rate, and a released statement revised projected GDP growth and inflation slightly higher.

Bank Indonesia’s seven-day reverse repo rate was kept at 4.25%, following a pair a 25-basis point cuts in August and September. After the second of these reductions, officials had proclaimed that the rate had reached a neutral level, so today’s decision not to ease further comes as no surprise.

The Fed Beige Book released late Wednesday is generally upbeat, noting benign inflation in spite of a tighter labor market and continuing positive growth in spite of some natural disasters.

The possibility of a U.S. federal government shutdown late this year appears to be growing. The dollar fell overnight by 0.5% against the Swiss franc, 0.3% relative to the euro and yen, 0.2% versus the Australian dollar, and 0.1% vis-a-vis the peso and yuan. Sterling and the loonie dipped 0.1%.

India’s market was closed for the Diwali-Laxmi Puja holiday. In other stock markets in the Pacific Rim, Japan’s Nikkei rose 0.4% but declines of 0.4% in South Korea and 0.3% in China and Indonesia were posted.

The 10-year British gilt yield fell 3 basis points, but its German and Japanese counterparts are steady. A lower Treasury yield is indicated in futures.

West Texas Intermediate crude oil continued to map a see-saw pattern, falling back 1.3% to $51.36 per barrel. Copper also declined, but Comex gold is 0.4% firmer at $1,288.40 per ounce.

Some soft data were reported today:

  • Chinese on-year GDP growth slowed to 6.8% in 3Q17, weakest since the final quarter of 2016. The on-quarter rise of 1.7% was also weaker than that in the second quarter.
  • Chinese fixed asset investment during the first nine months of 2017 was 7.5% greater than a year earlier. That’s slower than the January-August rise of 7.8% or the full-2016 increase of 8.1%.
  • British retail sales volume sank 0.8% in September, the worst month-on-month result since March. Sales declined 0.7% excluding fuel and posted only a 1.6% rise from a year earlier.
  • Japan’s all industry index edged up only 0.1% in August after a 0.1% dip in July. Construction and service sector activity each contracted. The all-industry index was 1.7% higher than in August 2016, down from on-year growth of 2.5% in the second quarter.
  • South African wholesale turnover dropped 1.1% on month and 1.6% on year in August.
  • The NAB quarterly index of Australian business confidence declined a point to +7 in 3Q17.
  • Japan’s seasonally adjusted customs trade surplus in September of JPY 240 billion was smaller than surpluses of JPY 308 billion in August and JPY 302 billion in July.

Some released data were more encouraging.

  • Australian unemployment edged lower to 5.5% in September and was associated with a somewhat larger-than-forecast 19.8K rise in jobs.
  • Chinese retail sales (+10.3%) and industrial production (+6.6%) both registered higher on-year increases in September than in August.
  • The Swiss trade surplus of CHF 2.92 billion in September was 35% wider than in August.

U.S. weekly jobless insurance claims and the monthly Philly Fed manufacturing index and Conference Board’s index of leading economic indicators will be reported today.

Policy announcements from the central banks of Chile and Israel will be made later today, and the European Union Council continues to meet.  The Communist Party Congress in Beijing continues as well.

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

 

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