Fading Hopes of a U.S.-Sino Trade Deal Hammers Share Prices

December 3, 2019

Evidence keeps mounting that a near-term trade deal is slipping away. President Trump denied any deadline and hinted that a phase I agreement will not happen before next year. Angry about the U.S. congress’s resolution of support for Hong Kong protesters and perceived U.S. interference in Chinese domestic affairs on the mainland, Beijing officials reportedly are preparing a list of U.S. companies to be shunned.

U.S. equities have dropped over 1.0% today. So too have markets in Canada, the U.K., France Italy, and Australia, but China’s equity market shows a slight gain. Japan’s Nikkei closed down 0.6%.

Ten-year sovereign debt yields have fallen 10 basis points in the U.S., 6 basis points in Germany, France and Spain, 5 bps in the U.K. and 3 bps in Italy.

The  wave of risk aversion lifted gold over 1.0% and depressed the price of WTI  oil by 0.4%.

The dollar rose 0.3% against the yuan but fell 0.5% against the Swiss franc, 0.3% relative to sterling, 0.2% vis-a-vis the Aussie dollar and yen and 0.1% versus the kiwi. The dollar so far on net today is unchanged against the euro, loonie and peso.

The Reserve Bank of Australia Board left its official cash rate unchanged at a record low of 0.75%, which was reached after a recent trio of 25-basis point cuts in June, July and October. Similar to a statement released after the November meeting, today’s explanatory statement projects low interest rates for an extended period of time and warns that further easing will be undertaken if trends in consumer prices and the labor market fail to track along desired improving paths. Wages are too subdued, and unemployment needs to fall. Growth is projected to accelerated a bit, and a gradual rise in inflation to 2% in 2020-21 is also thought likely. The statement observes low interest rates in other countries.

Central banks are also being reviewed today in Poland and Chile.

Producer prices in the euro area rose 0.1% in October but posted their greatest year-on-year decline (1.9%) in 38 months. Energy prices were 7.9% lower than a year earlier, and all other producer prices collectively were up only 0.3%.

South Korean real GDP in the third quarter of 2019 was confirmed at the preliminary growth estimates, that is a 2-quarter low rise of 0.4% versus 2Q and a year-on-year 2.0% advance, which matches the second-quarter result.

Third-quarter real GDP in South Africa contracted 0.6% on quarter at an annualized rate. This depressed on-year growth to a mere 0.1% from 0.9% in the second quarter and 1.3% in the third quarter of 2018.

A 0.6% rise of Brazilian real GDP last quarter was the most since the first quarter of 2018. On-year growth of 1.2% represents a three-quarter high. Brazil’s trade balance in the first 11 months of 2019 ($41.08 billion) was 20.4% smaller than a year earlier.

Australia’s current account surplus widened to a record high of A$ 7.855 billion in 3Q19 and compares with a A$ 10.188 billion deficit in the third quarter of 2018.

Swiss consumer price inflation stayed negative in November but accelerated to -0.1%. An on-year CPI drop of 0.3% in October had been the largest such drop since December 2016.

Turkish CPI inflation rebounded from a 3-year low of 8.55% in October to a 3-month  high of 10.56% in November. Core CPI inflation increased 2.6 percentage points to 9.25%.

On-year growth in Japan’s monetary base of 3.2% in October-November matched the pace of the third quarter but was down from 4.0% in the first half of this year, 7.3% in 2018, and 17.0% in 2017. The base is the monetary aggregate over which the central bank exerts most direct control.

British same-store sales posted a record 4.9% on-year decline in November. There had been a 0.1% on-year uptick in October.

The British construction purchasing managers index rose 1.1 points to a 4-month high of 45.3 in November, indicating the slowest rate of contraction since July.

The global manufacturing PMI in November moved above the 50 line of neutrality in November for the first time in seven months, but such improvement is unlikely to endure given the recent deterioration in U.S.-Sino trade talks.

Non-oil private purchasing manager surveys for November revealed a 26-month low of 47.9 in Egypt but a 51-month highof 58.3 in Saudi Arabia‘s economy.

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

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