Investors Remain on Edge
October 19, 2018
China reported the lowest on-year GDP growth (6.5% in 3Q) since the first quarter of 2009.
Damning evidence continues to mount that the highest levels of the Saudi government were complicit in the likely death of dissident journalist Khashoggi. U.S. Treasury Secretary Mnuchin upcoming trip to Saudi Arabia was cancelled.
Two Fed officials, Governor Quarles and St. Louis Fed President Bullard, hinted that the pace of rise in the Fed funds rate maybe needs to be slowed.
But Federal Reserve rate normalization was cited as a factor in a released statement from the Central Bank of Chile explaining yesterday’s 25-basis point Chilean central bank rate to 2.75%. Such was the first increase since December 2015.
September Japanese consumer price data revealed a continuing wide gap between very low inflation and the Bank of Japan’s 2% target. The CPI was flat on month in seasonally adjusted terms in spite of a 0.9% rise in the energy component. On-year inflation edged down 0.1 percentage point to 1.2%, but core CPI inflation, which does not exclude energy, edged up to 1.0% from 0.9%. However, core core inflation, which excludes both fresh food and energy, remained at 0.4% and was unchanged in month-on-month terms.
Eurozone political strains (Brexit and Italy’s excessive budget deficit) continue to put pressure on fixed income markets there, widening the spread between fiscally healthy members like Germany and perceived vulnerable nations. The 10-year German bund yield remained steady at 0.41%, while 10-year sovereign debt yields climbed by 6 basis points in Spain, 4 bps in Portugal, 3 bps in Greece and 2 bps in France and Italy.
China’s stock market rebounded 2.6% overnight but still shows a monthly drop of 6.6% and an on-year plunge of 24.3%. Chinese GDP was as expected, and other reported data were mixed. A 9.2% on-year rise in retail sales reflected a second straight acceleration and beat expectations. The jobless rate dipped 0.1 percentage point to a 3-month low of 4.9%, and fixed asset investment growth of 5.4% was marginally better than predicted. But on-year increases of 5.8% in industrial production in September represented a new low for 2018 and fell short of analyst forecasts.
Stock markets elsewhere remained mostly on tenterhooks overnight. Japan’s Nikkei dropped by a further 0.6%. Share prices also fell 1.3% in India, 1.2% in New Zealand, 0.4% in Taiwan, 0.2% in Singapore and 0.1% in Indonesia and Australia. In Europe thus far, equities have slumped by 1.5% in Greece, 1.3% in Italy, 0.9% in France, 0.8% in Spain, and 0.4% in Germany.
WTI oil firmed 0.6% amid Middle Eastern concerns. Gold is flat.
The dollar shows mixed overnight movement, rising 0.3% against the loonie and 0.2% versus the yen but depreciating 0.8% against the kiwi, 0.4% vis-a-vis the Aussie dollar, 0.3% relative to the peso and 0.1% against the euro, yuan and sterling.
Euroland’s seasonally adjusted current account surplus widened by EUR 4.4 billion to a two-month high of EUR 23.9 billion in August. Over the last 12 reported months, the surplus equaled a robust 3.3% of GDP, but global trade tensions cast doubt on future performance.
Britain had its smallest public sector borrowing requirement last month for any September since 2007. The deficit totaled GBP 3.259 billion, down from GBP 4.09 billion in September 2017. Government debt as a share of GDP fell to 84.3% at end September versus 86.7% a year earlier.
Dutch consumer confidence weakened to a reading in October of 15 from 19 in September. Belgian consumer sentiment also gets reported today.
Other data due today include U.S. existing home sales and Canadian retail sales and consumer prices.
Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Chinese GDP, Chinese retail sales and industrial output, Euroland current account, Japanese CPI