Stampede Out of Risky Assets

December 6, 2018

Japan’s Nikkei fell 1.9% overnight, and share prices are down even more sharply in the United States, Canada, U.K., Germany, France, Spain, China, Hong Kong.

10-year sovereign debt yields have climbed 14 and 10 basis points in Italy and Greece but fallen 8 bps in the U.K., 7 bps in the  U.S., 5 bps in Germany and 1 basis point in Japan.

West Texas Intermediate crude oil has plunged over 4.0%. Gold is up 0.4%.

The dollar fell 0.8% against the yen, 0.6% versus the Swiss franc, 0.4% relative to sterling, 0.3% vis-a-vis the euro and 0.2% against the peso, while rising 0.7% against the Aussie dollar, 0.4% relative to the yuan and 0.3% against the loonie.

U.S.-Sino trade tensions took a very bad turn after the United States engineered an arrest of a top Chinese technology firm official. Meanwhile, the Federal Reserve Beige Book released yesterday revealed nothing to suggest that rate normalization is still a “go.”

Revelations in today’s big batch of U.S. economic data release were as follows:

  1. The U.S. goods and services trade deficit widened further in October, bring the year-to-date imbalance to $502.74 billion, 11.2% greater than a year earlier. Merchandise trade positions with China, Japan, Germany, and Opec all deteriorated between September and October.
  2. New U.S. jobless insurance claims averaged 228K per week over the latest four-week period versus 213.75K in the previous four weeks and 208K in the four weeks through September 8th.
  3. Factory orders fell 2.1% in October after a mere 0.2% uptick the month before.
  4. ADP’s estimated private-sector employment increase last month was 179K, 46K less than in October.
  5. Labor productivity rose 2.3% last quarter and matched the second quarter’s year-on-year advance of 1.3%.
  6. The quarterly advance of unit labor costs last quarter was revised down 0.3 percentage points to a sub-1% 0.9%. Such had climbed 2.2% on average in 2017.
  7. The Institute of Supply Management’s non-manufacturing U.S. purchasing managers index rose 0.4 index points to a robust 2-month high of 60.7 last month, led by much faster improvement in orders and business activity.

A top  official of the Reserve Bank of Australia said a rate hike there is some way off and expressed concerns about banking behavior.

The National Bank of Serbia kept its key policy rate unchanged at 3.0%, the level since a trio of cuts totaling a percentage point between October 2017 and April 2018. Inflationary pressure is deemed “low” despite robust growth.

German industrial orders rose only 0.3% in October because of a 3.2% slump in domestic demand. Overall orders recorded a larger on-year decline of 2.7%.

Germany’s construction purchasing managers index climbed back above the 50 improvement versus deterioration barrier to a 3-month high of 51.3 in November.

The Egyptian, Saudi, and U.A.E. non-oil PMIs rose to 3-, 4- and 4-month highs last month of 49.2, 55.2. and 55.8, respectively.

Australian retail sales rose 0.3% in October and matched September’s 3.5% 12-month rate of increase. Australia’s trade surplus narrowed 22% from September to October, but the year-to-date surplus of A$ 17.6 billion was 49% bigger than a year before.

The Canadian trade deficit of C$ 1.165 billion in October was larger than the prior month’s shortfall but less than a deficit of C$ 1.379 billion in October 2017. Exports and imports each contracted on month but exceeded year-earlier levels by 10.4% and 9.6%. A separate Canadian release showed a 4.6-point drop in the IVEY-PMI index to 57.2, the second lowest reading in the past 10 months.

In the year through November, Dutch and Cypriot consumer prices rose by 2.0% and 2.9%. Russian consumer price inflation accelerated to a 16-month high of 3.8% last month.

Consumer confidence improved in Indonesia to a 4-month high in November.

South Africa’s current account deficit widened a bit to 3.5% of GDP last quarter.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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