Volatile Markets in Aftermath of Republican Big Win

November 5, 2014

Republicans retook control of the Senate and will hold at least 52 of the 100 seats.  Republicans defended the House of Representatives where they will hold at least 56% of the seats.  Republicans also will control 5/8ths of the state governorships.  In more cases than not where Republicans won, the margin of victory was greater than opinion surveys had suggested.

The dollar advanced 1.4% against the Australian dollar, 1.0% versus the yen, 0.5% relative to the euro and Swissie, 0.3% against sterling and the kiwi, and 0.1% versus the yuan.

U.S. equity futures point to a higher open.  In Europe, stocks have limbed 2.0% in Italy, 1.6% in France, 1.3% in Spain, 1.2% in the U.K., 1.5% in Grmany and 1.4% in Switzerland.  The positive response seems to be a kneejerk perception that Republicans are friendly to business and therefore good for GDP growth and corporate earnings.  In fact, the U.S. stock market since 1960 has generally performed better under Democratic presidencies than Republican ones.

Equities in the Pacific Rim slipped somewhat, with losses of 0.4% in Japan and China, 0.6% in Hong Kong and New Zealand, and 0.2% in South Korea.

Gold tanked 2.3% to $1,141.30 per ounce.  Oil edged down 0.2% to $77.04 per barrel.

Japan’s monetary base posted on-year growth of 36.9% in October, down from 39.4% in 3Q, 46.5% in 2Q and 54.1% in 1Q.  Last week, the BOJ voted to augment the pace of quantitative easing.  The central bank balance sheet has risen from 164.4 trillion yen at end-March 2013 when QE was inaugurated to JPY 240.8 trillion a year later and JPY 286.8 trillion at the end of last month.  Japanese labor cash earnings grew 0.8% in the year to September, down from an on-year pace of 0.9% in August.

Disappointing euro area retail sales were reported for September.  Their volume fell 1.3% from August, trimming the 12-month increase to 0.6% from 1.9% in the year to August.  Non-food items accounted for all of September’s setback.

Service-sector purchasing manager survey results have been published.

  • In the euro area, the services PMI was revised down 0.1 to an 11-month low of 52.3.  Profit margins are getting squeezed, and business sentiment is falling.  The composite Ezone PMI printed at a 2-month high of 52.1 after scoring a 52.0 in September.
  • Among members of the euro area, Spain’s services PMI of 55.9 was at an 8-month low, but its composite PMI touched a 2-month high of 55.5.  Germany’s 54.4 services PMI was a 7-month low, and its composite PMI of 53.9 was a 2-month low.  France recorded a services PMI of 48.3 and a composite score of 48.2, each being 4-month lows.  Ireland’s 61.5 on services was a 3-month low, while the Irish composite PMI of 60.2 was at a 2-month high.  Italian PMI readings of 50.8 on services and 50.4 on the composite index of both services and manufacturing were each at 3-month lows.  In this scoring, a value of 50.0 is the demarcation line between expanding and contracting activity.
  • The British services PMI of 56.2 represents a 17-month low.  The composite PMI of 55.8 was more than a point below expectations.
  • Australia’s service-sector PMI of 43.6 was a 14-month low following 45.4 in September and 49.4 in August.
  • Hong Kong, where there’s been civil unrest, reported the lowest PMI (47.7) in 37 months.
  • Lebanon’s private PMI improved 1.2 points to a 4-month high of 48.8.
  • A 0.1 rise in South Africa’s private PMI was a 22-month high and led by the strength of new business.
  • China’s composite PMI reading of 51.7 was a five-month low and featured the least inflation in seven months.  The services PMI fell 0.6 points to 52.9.
  • India’s services PMI was exactly 50.0, a 6-month low, and the composite PMI in India of 51.0 was the lowest since May.
  • Brazilian PMIs swung below 50, services to 48.2 from 51.2 and composite to 48.4 from 50.6 the month before.
  • On a brighter note, Sweden’s services PMI increased 2.1 points to a five-month high of 57.7.

British shop prices fell 1.9% between October 2013 and October 2014.

New Zealand labor statistics were very upbeat last quarter.  The jobless rate of 5.4% was below 5.6% in 2Q and 6.1% in the third quarter of 2013.  Employment rose by 0.8% between 2Q and 3Q, and hourly wage earnings went up 1.4% on quarter and 2.3% on year.

Swiss consumer prices were unchanged both on month and on year in October.  Filipino consumer prices increased 4.3% in the year to October with a core rate of 3.2%. 

Swedish industrial production fell 1.1% in September and was 4.3% lower than a year earlier.

The Bank of Thailand left its 2.0% benchmark interest rate unchanged, but there a single dissent among the seven policymakers who voted for a 25-bp rate cut.

The Bank of Iceland did reduce its key interest rate (a 7-day lending rate), breaking a two-year pause in monetary policy.  The new rate level becomes 5.75% versus 6.0% before.

U.S. mortgage applications fell 2.6% last week on top of a 6.6% dive the week before.  The Institute of Supply Management will release the service sector purchasing managers survey results later today.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

Tags: , , ,


Comments are closed.