Hope Rises that Trade Talks with China and Border Wall Talks Can Be Resolved

January 25, 2019

Equities lately have been a better barometer than foreign exchange of optimism that the U.S. government shutdown will be resolved and that a re-escalation of U.S. and Chinese tariffs will be averted. On that score, it’s a good sign that in the Pacific Rim share prices closed up by 1.7% in Hong Kong, 1.5% in South Korea, 0.9% in Taiwan, and 1.0% in Japan. In Europe, moreover, stocks are up 1.4% in Germany, 0.9% in France, and 0.7% in Italy. But a mere 0.1% uptick in the British Ftse signals continuing gloom about the Brexit crisis.

The dollar rose overnight by 0.3% against the yen and 0.1% versus the Swiss franc but has slipped 0.5% against the peso, 0.4% vis-a-vis the yuan, 0.3% versus the euro and Australian dollar, and 0.2% relative to the loonie and kiwi.

Ten-year sovereign debt yields firmed a basis point in the U.S. and U.K., show no net change in Germany, and fell a basis point to -0.01% in Japan.

Among commodities, oil and copper have traded 0.5% higher, while gold is 0.3% firmer.

Due to the continuing U.S. federal shutdown, new home sales and durable goods orders, whose release had been scheduled this morning, were added to the pile of delayed indicator reports.

The biggest data news out of Europe today was contained in the IFO Institute’s business climate index for January. Such dropped by a greater-than-forecast 1.9 points to a 35-month low of 99.1. This reading compares to 104.6 a year earlier and was sufficiently low that IFO officials summing up the data said,“the German economy is experiencing a downturn.” By sector, manufacturing, construction, and trade each suffered big hits. A deterioration in expectations of 2.9 points to 94.2 produced the weakest reading since the end of 2012. Current conditions, by comparison, slid less sharply in January than such had in December.

Among other European data releases,

  • The CBI’s British distributive trades index rebounded from a 14-month low of -13 to a reading of zero in January, which is still 19 points lower than November’s level. Also, a 1.1% monthly decline of mortgage approvals occurred last month, according to the British Bankers’ Association.
  • Spanish producer prices fell 1.1% on month in December after a 1.0% slide in November, cutting the 12-month rate of increase to a nine-month low of 1.6%. On-year PPI inflation recently crested at 5.3% in September.
  • A 1.1% drop in Swedish retail sales between December 2017 and last month was the largest on-year decline in nearly nine years. From a separate report came news that Swedish PPI inflation slowed to an 8-month low of 5.6% in December from 7.9% in November and 10.1% in September.
  • Austrian industrial production dropped 2.4% on month in November, producing the smallest on-year increase (1.0%) in 22 months.

Core consumer price inflation in Tokyo, which includes energy but not perishable food, accelerated by 0.2 percentage points to 1.1% in January, the highest since March 2014. However, the more conventional measure of underlying inflation, excluding energy as well as fresh food, was just 0.7%, still far from target.

South Korean consumer confidence rebounded to a 3-month high of 97.5 in January, still much weaker than a reading of 107.4 eight months earlier.

On-year growth in Singapore’s industrial production of 2.7% in December constituted a 3-month low, and the 5.6% month-on-month decline was the most in 2018.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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