Beijing Promises Stimulus for Smaller Firms, and Investors Await Fed Chairman Powell’s Humphrey Hawkins Testimony

February 11, 2020

A pledge by China’s government to counteract any drag on growth from the coronavirus outbreak with fiscal support aimed at small and midsized companies boosted share prices in the Pacific Rim by 1.3% in Hong Kong and New Zealand, 1.0% in South Korea, 0.8% in Taiwan, 0.6% in India and 0.4% in Singapore and China. Japan’s market was shut for National Foundation Day.

Equities are up in Europe thus far by 0.8% in the U.K. and Germany, 0.6^ in Italy, 0.4% in Switzerland and 0.3% each in France and Spain.

Investors now await Fed Chairman Powell’s semi-annual testimony before the House Financial Services Committee. He is expected to dissuade speculation about any interest rate change during 2020, a theme picked up in overnight comments by the presidents of the San Francisco Fed, Mary Daly, and the Philadelphia Fed, Patrick Harker.

Ten-year sovereign debt yields rose overnight by three basis points in Germany and 2 bps in U.S. futures and British gilts.

The dollar has slipped 0.4% against the Australian dollar, 0.2% relative to the yuan, loonie and peso, and 0.1% versus the kiwi but is up 0.1% against the yen and Swiss franc. EUR/USD is steady.

West Texas Intermediate crude oil, which fell yesterday below the psychological $50 per barrel level, rose 2.1% and is back somewhat above that threshold. The price of gold, in contrast, has dipped 0.4%.

Today’s menu of economic data releases has been dominated by British statistics:

  • Real GDP in the U.K. was flat last quarter and decelerated in year-on-year terms to a 7-quarter low of 1.1%. Consumer spending edged up only 0.1%, a 4-year low, and gross fixed capital formation dived 1.6%. Alternatively, net exports were lifted as imports slowed to a trickle ahead of Brexit, and an 87-month high in government spending growth of 2.1% provided the major growth impetus.
  • Industrial production rose by a less-than-forecast 0.1% in December and ended 2019 1.8% lower than in December 2018. On average, IP fell 1.3% in full-2019, led by on-year drops in manufacturing of 2.5% in December and 1.5% for the whole year.
  • Construction output, on a brighter note, climbed 0.4% in December and posted a 9-month high in on-year growth terms of 5.0%.
  • Monthly GDP rose 0.3% in December, reversing November’s drop, but was unchanged in the fourth quarter compared to the third quarter.
  • The goods and services trade balance in December set a record surplus of GBP 7.715 billion, but the deficit in 2019 of GBP 29.3 billion was little changed from GBP 29.8 billion hit in 2018.
  • Same-store sales were also unchanged in January from a year earlier according to a release by the British Retail Consortium.

Home sales in Australia increased 3.5% in December, which was the largest monthly advance since July. A separate Australian release from the National Australia Bank revealed a single-point rebound in business confidence during January from December’s 6-1/2 year low of minus 2. The companion business conditions index remained unchanged at +3 and has fluctuated narrowly between +2 and +4 since September.

Indonesian retail sales leaped 8.5% on month in December but posted a negative 12-month change (-0.5%) for the first time since -1.8% last June.

South African unemployment of 29.1% in both the third and fourth quarters of 2019 constituted an 11-year high and compares to 27.5% in the final quarter of 2018. South African industrial production rebounded 2.8% in December, but such was not enough to prevent the largest on-year drop (5.9%) in 65 months.

Norwegian consumer sentiment slipped to a 2-quarter low in the first quarter of 2020.

Mexican industrial production fell 0.3% in December but recorded its smallest year-on-year decline (1.0%) since last March.

The NFIB index of U.S. small business sentiment improved more substantially than forecast in January, climbing to a 2-month high of 104.3 from 102.7 posted in December.

New Hampshire primary polls close today on a city-by-city basis at either 7PM or 8PM EST.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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