Mixed News at Month End

October 31, 2017

The dollar traded up by 0.6% against the kiwi, 0.4% relative to the Swiss franc and Australian dollar, and 0.2% vis-a-vis the yen, euro and loonie. The dollar is unchanged against sterling and 0.3% and 0.2% softer against the peso and yuan.

In stock market action, share prices rose 0.9% in South Korea and 0.5% in Indonisia. There have been gains so far of 1.0% in Greece and Spain. Other market moves on this final day of October have been inconsequential.

The 10-year German bund yield rose a basis point, and its British counterpart dipped a basis point. The 10-year Japanese JGB yield held steady at +0.06%, unaffected by the Bank of Japan’s policy review.

Gold and oil slid 0.3% and 0.1%.

The Federal Open Market Committee policy review begins today and will announce its decision and release a statement at 14:00 EDT tomorrow.

Jerome Powell remains the market’s odds-on top contender to be named the next Fed chairman. The last non-economist to hold this job (February 1978-August 1979) did not do it well and was replaced in just a year and a half.

The Bank of Japan left policy settings unchanged by a vote of 8-1. Kataoka preferred even more stimulus if it looks like it will take longer to achieve the core CPI inflation target of 2.0%. One of his ideas is to target the yield on 15-year JGBs as well as 10-year JGBs. The BOJ also released an updated Outlook, which embodies a lower projected core inflation forecast this fiscal year of 0.8% versus forecasts of 1.1% made three months ago and 1.4% assumed in last April’s Outlook.

Some good news was reported overnight:

To avoid a military clash, Catalonian separatists stood down.

Real GDP in the euro area expanded 0.6% in the third quarter, a tad more than forecast. The economy has produced positive growth each quarter for the past 4-1/2 years, and the year-on-year growth rate rose to 2.5% from 2.3% in the second quarter and 1.7% in the third quarter of 2016.

Unemployment in Euroland at last slipped under the 9% level to 8.9% in September. That’s a full percentage point less than 9.9% a year earlier.

French GDP rose 0.5% on quarter and 2.2% on year. The year-over-year increase hadn’t been that big since 2011. In the latest quarter, growth was powered by domestic demand and inventory building, while net exports exerted a 0.6 percentage point drag.

Austrian GDP grew 0.8% last quarter and 2.6% from a year earlier.

Spain’s current account stayed solidly in surplus in August at EUR 2.618 bln.

Japanese unemployment stayed very low, printing at 2.8% in September for a fourth straight month. Employment was 1.1% higher than a year before.

Japanese industrial production (IP) fell less sharply in September than expected (1.1% instead of 1.6) and posted a 0.4% quarterly rise to follow gains of 2.1% in 2Q and 0.2% in the first quarter. IP was 2.5% higher than in September 2016, including a 1.7% increase in motor vehicle production. Moreover, a likely big IP increase is thought likely to occur in October.

Japanese real disposable income recorded a robust 2.3% on-year advance in September.

South Korean industrial production and retail sales recorded strong on-year advances of 8.4% and 8.3% in September.

The U.S. employment cost index (ECI) accelerated last quarter, which is a sign of a healthier labor market. The ECI rose 0.7% on quarter, up from 0.5% in 2Q, with both wages and benefits contributing to the rise. The ECI was 2.5% higher than a year before, up from on-year gains of 2.4% in 2Q and 2.3% in the third quarter of 2016.

The U.S. Case-Shiller house price index for 20 metro areas increased 0.5% in August and was 5.9% greater than a year before.

Halloween 2017 also appropriately offered some unsettling news.

  • The indictment of some high Trump campaign workers by Special U.S. Prosecutor Mueller, which is sure to be a political distraction, has investors wondering if tax reform might not get approved.
  • Euroland CPI inflation unexpectedly fell to 1.4% in October. Core inflation dropped 0.2 percentage points to 0.9%. The services component declined 0.3 percentage points to 1.2%.
  • The government-compiled purchasing manager indices for China each declined in October. Manufacturing fell 0.8 points to a 3-month low of 51.6, while the non-manufacturing Chinese PMI slipped 1.2 points to a 2-month low of 54.3.
  • The Bank of England estimates that 75K financial services jobs will be lost because of the U.K. leaving the European Union. British consumer confidence slipped back to a reading of minus 10 in October, second lowest of 2017.
  • Real household spending in Japan recovered 0.4% on month in September and remained 1.3% lower than in June and 0.3% below the September 2016 level.
  • New Home sales in Australia was 6.1% weaker in September and some 13% below the level in June.
  • Business sentiment in New Zealand lurched from a September reading of zero to -10.1 in October. Building permits fell 2.3% in the latest month.
  • Japanese housing starts and construction orders were 2.9% and 11.6% weaker last month than in September 2016.
  • Consumer prices in Italy slipped 0.2% in October and to a smaller on-year pace of 1.0%.
  • Canadian real GDP compiled from the supply side dipped 0.1% in August after stagnating in July. Canadian producer prices slipped 0.3% in September.

Still ahead: The Chicago regional PMI and Conference Board consumer confidence index.

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


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