Out of Fixed Income Assets and Into Stocks

November 15, 2019

After a few days that saw sovereign debt yields decline, ten-year U.S. Treasuries, German bunds and British gilts each rose two basis points overnight. In stock market action, equities rose 0.9% in Australia, 1.1% in South Korea, 0.7% in Japan and Taiwan but slipped 0.6% in China. European stock markets so far show gains of 0.5% in Spain, 0.6% in Switzerland, 0.4% in France, 0.3% in Italy and the U.K., and 0.2% in Germany.

Prices for WTI oil and Comex gold have slid 0.2% and 0.6%, and the dollar is mostly lower, with drops of 0.5% versus the peso, 0.4% against the kiwi, 0.2% relative to the Australian dollar and Chinese yuan, and 0.1% vis-a-vis the yen, loonie, and euro. Sterling is steady.

The Governing Board of the Bank of Mexico voted 5-2 in favor of a third consecutive 25-basis point interest rate cut, which becomes 7.5%. The two dissenters wanted a 50-basis point reduction. The combined 75-basis point reduction remains small in comparison with 500 basis points of tightening during 2016-18. Officials released a statement that notes continuing “marked uncertainty,” cuts projected growth, and foresees inflation hovering around the 3% target.

CPI inflation in the euro area was confirmed at the provisional estimate of 0.7%, which is its lowest pace since November 2016. Core inflation stood at 1.1% last month, similar to 1.2% in October 2018.

Euroland’s trade surplus narrowed to EUR 18.3 billion in September on a seasonally adjusted basis from EUR 19.7 billion in August. The year-to-date unadjusted surplus of EUR 155.5 billion was 5.6% wider than a year earlier.

Euroland’s index of leading economic indicators fell in October for a sixth straight month. The cumulative decline over that half-year span exceeded 2.0%.

Japanese industrial production and shipments in September were revised slightly above provisional estimates to now show monthly gains of 1.7% and 1.5%. But output still recorded drops in the third quarter of 0.5% from 2Q and 0.8% from a year earlier. Capacity fell 0.7% compared to September 2018, while capacity utilization was only 0.2% higher than a year earlier.

New house prices in China recorded their smallest 12-month rate of increase (7.8%) in October since August of 2018.

The street chaos in Hong Kong remained intense this Friday, even as released GDP data from there revealed a whopping 3.2% contraction from the previous quarter and resulted in the first on-year drop (2.9%) in 10 years. This was the third drop of GDP in four quarters, moreover.

Malaysian real GDP posted its smallest on-year advance (4.4%) in a year last quarter.

Turkey’s unadjusted jobless rate edged up 0.1 percentage point to a 5-month high of 14.0% in August, but the seasonally adjusted pace eased modestly. Turkish retail sales were higher than a year earlier by 2.7% in September, breaking a streak of on-year declines going back to September 2018.

Italian CPI inflation of 0.2% in October was down from 0.3% in September and 1.6% last November. In the 12 months through October, consumer prices eased 0.5% in Cyprus, and producer prices in Denmark fell by 3.0%.

Public hearings on a possible Trump impeachment resume today. House representatives will hear from the former ambassador to Ukraine.

U.S. industrial production fell twice as much in October (0.8%) as had been forecast, resulting in a 1.1% slide from a year earlier. Capacity usage declined 0.8 percentage points to a 25-month low of 76.7%. Retail sales growth of 0.3% last month only offset September’s decline, and although the rise marginally exceeded street forecast, sales excluding autos and gas station purchases merely firmed 0.1%.

The 12-month rate of decline in U.S. import prices nearly doubled to a 39-month high of 3.0% in October from 1.6% in September. New York’s Empire State manufacturing index fell 1.1 points to a 2-month low reading in November of 2.9.

It’s Proclamation Day in Brazil. Sri Lanka’s last monetary policy review of 2019 was rescheduled from today to November 29th.

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

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