A Complicated and Contradictory Day of News

September 29, 2016

India announced it had delivered surgical strikes on militant terrorist camps just within Pakistan. Pakistan’s government is denying the accusation and India’s claim that the strike inflicted heavy casualties. The one thing certain is that the incident constitutes an escalation of one of the world’s most serious potential hotspots.

  • The Indian rupee lost 0.6%, and the economy’s stock market closed down 1.6%.

Opec ministers reached an unexpected yet still tentative agreement to cut production to a range of 32.5-33.0 million barrels a day. WTI oil is at $47.07 per barrel, holding yesterday’s sharp gain. Comex gold at $1,324.20 per ounce is also unchanged.

Stock markets in Asia and Europe were helped by Opec’s news. Share prices closed up 1.4% in Japan, 1.1% in Australia, 1.0% in Singapore, 0.8% in New Zealand, Taiwan, and South Korea, 0.6% in Hong Kong and 0.4% in China.  In Europe, equities have risen 1.1% in the U.K. and Spain, 1.2% in France, 1.4% in Italy, and 0.8% in Germany.

Confusion persists over what impact Monday’s debate will have on the U.S. election. In any case, the accusation of politicized Fed policy is deemed worrisome.

A number of Fed officials have spoken in public. There have been hawkish remarks from Mester, George, and Harker, while Evans made predictably dovish comments. Lockhart will be retiring at end-February as Atlanta Fed President. Chair Yellen speaks later today.

Bank of Japan Governor Kuroda defended the yield curve focus of the new monetary policy framework and said officials have a number of options if easy policy needs to be augmented.

ECB Governing Council member Liikanen likewise said ECB quantitative stimulus could be extended past March 2017 is that’s deemed necessary.

The Czech National Bank retained its policy settings, an interest rate of 0.05% and an asymmetric currency policy that uses intervention to keep the koruna from strengthening beyond 27 per euro.

The Central Bank of the Republic of China retained its key discount rate at 1.375%, having cut such at the prior four straight quarterly reviews by 12.5 basis points each from a previous high of 1.875%.

German inflation accelerated in September to 0.7% from 0.4% according to preliminary findings based on six states. The 12-month increase of consumer prices rose to 0.6% in Hesse from 0.3%, to 0.7% in North Rhine Westphalia from 0.4% in August, to 0.8% in Bavaria from 0.5%, to 0.7% in Saxony from 0.5%, to 0.7% in Brandenburg from 0.1%, and to 0.7% in Baden-Wuerttemberg from 0.2%.

Spain also reported higher inflation, which was above zero for the first time since July 2015. Such swung to +0.3% from -0.1% in the prior month.

The number of unemployed German workers rose 1K in September; that was the first monthly rise since July 2015. But the jobless rate stayed at 6.1% (4.2% on a standarized ILO basis).

Eurostat reported a sharp 1.4-point increase in Euroland’s economic sentiment index to an 8-month high of 104.9 in September. Consumer confidence improved by 0.3 points. Industrial sentiment went up 2.6 points. Retail sector sentiment improved 1.6 points, but services edged just 0.1 point higher. Construction advanced by 0.8 points. The business climate index printed at 0.45 after 0.03 in August and was the best score in eleven months.

Icelandic CPI inflation doubled to 1.8% in September.

Danish unemployment held steady at 4.3% in August.

Dutch producer sentiment improved 2.2 points in September to a reading of +3.4.

Austria’s purchasing managers index among manufacturers rebounded to a 3-month high of 53.5 in September after dropping 1.3 points to 52.1 in August. Growth quickened in production and new orders.

Japanese total retail sales fell 1.1% on month in August after rising 1.5% in July, and such posted a bigger 2.1% on-year decline versus -0.2% in the year to July. Large store sales were 3.6% lower than in August 2015.

As the mid-point of Japan’s fiscal year approached, stock and bond transactions generated back-to-back net outflows of 3.01 trillion yen in the weak of September 16 and JPY 3.81 trillion last week.

British M4 growth accelerated to 5.4% in August from 3.9% in July. Mortgage approvals fell further to 60.06K, but consumer credit expanded more than such had in July.

South African M3 money grew 5.48% on year in August, similar to the on-year rise in July, while the expansion rate of private sector credit slowed to 6.15% from 6.78%. Producer prices dipped 0.1% on month and posted a slightly smaller 12-month increase in August of 7.2%.

Investors are thus sifting through mixed economic news but with signs of more inflationary potential.  At the same time, background uncertainty, which already was elevated by the U.S. election, now includes escalating hostilities between India and Pakistan, who both possess nuclear weapons.

The dollar jumped 0.9% overnight against the yen, which is deemed particularly vulnerable if Opec can stabilize or lift world oil prices. The Norwegian krone leaped to a 13-month high against the euro on the Opec news. The dollar otherwise is up 0.3% and 0.2% versus the Australian and New Zealand monies but down 0.2% against the Swissie and loonie and 0.1% versus sterling, the yuan and the euro.

10-year sovereign debt yields rose five basis points in the U.K., 3 bps in Germany and a basis point in Japan.

Today’s U.S. data releases showed

  • Upwardly revised second-quarter GDP growth from 1Q of 1.4% annualized.
  • Greater on-year core PCE deflator inflation of 1.6% in the first half of 2016.
  • Only 254K of jobless insurance claims last week, producing a 4-week average of 256K, down from 263K per week in the previous four weeks to August 27.
  • A smaller than expected $58.4 billion merchandise trade deficit in August according to the advanced trade report.

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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