A Depressing VEEP Debate, PMI Services Data, and Central Bank Developments

October 5, 2016

The U.S. vice-presidential debate showcased U.S. politics at its chaotic worst. On balance, Pence seemed more polished, but the American League wild card baseball playoff game offered much better entertainment.

On the central banking front,

  • The Bank of Iceland left its seven-day deposit rate unchanged at 5.25%, having cut such in August by 50 basis points. Krona strength, which has evoked intervention to cap appreciation, has helped keep inflation below target.
  • The National Bank of Poland’s key interest rate will remain at a record low 1.5%, the level since a 50 basis point reduction in March 2015.  Some analysts suspect such could be cut further down the road.
  • Chicago Fed President Evans, who’s been well aligned with Yellen, made remarks indicating a likely preference to raise the fed funds target by December but also wishes to delay further increases until sustained increases in actual inflation occur.
  • Atlanta Fed President Lacker, who is not one of the voting members on the FOMC in 2016, said he would have dissented from the September decision not to lift the fed funds target then.
  • Investors have become less confident about the likelihood of augmented ECB stimulus or ample BOJ stimulus.

In market action this Wednesday,

  • The dollar is narrowly mixed, with upticks of 0.4% against the kiwi and 0.2% versus the yen and Swissie but dips of 0.1% relative to the euro, loonie, Aussie dollar and sterling.
  • China remains shut in observance of the Communist Revolution of 1949 and will stay closed on Thursday and Friday as well.
  • Stocks in the Pacific Rim closed down 1.2% in New Zealand, 0.9% in Indonesia, 0.6% in Australia, 0.4% in India, and 0.1% in Singapore. Stocks rose 0.5% in Japan and Hong Kong.
  • Stocks in Europe are trading lower, with drops of 1.1% in Greece, 0.6% in the U.K., 0.5% in France, Switzerland, and Italy, 0.4% in Germany, and 0.3% in Spain. In the U.S., the DJIA rose about 0.5% in the first half hour of trading.
  • Among commodities, WTI oil advanced 1.9% to $49.59 per barrel. Comex gold had fallen sharply on Tuesday but has bounced 0.4% upward today to $1,274.60 per ounce.
  • Ten-year German bund and British gilt yields are three basis points higher, and the 10-year Japanese JGB has risen two basis points.

Today’s most impressive purchasing managers survey development involved the United States. The Institute of supply management reported a 5.7-point increase of the non-manufacturing PMI index to 57.1, with both production and orders advancing over 8.0 points between August and September. The services PMI reported by Markit Economics, by comparison, went up just 1.3 points to 52.3 in September.

Euroland’s services PMI fell 0.6 points in September to a 21-month low of 52.2, suggesting that economic growth lost momentum at the end of the third quarter and will be slower in the final quarter of 2016 than in 3Q.  The composite PMI reading of 52.6 is a 20-month low and includes a 39-month low in Ireland of 54.8, a 16-month low in Germany of 52.8, a 4-month Italian low of 51.1 and a 2-month Spanish low of 54.1.

The British services PMI slipped back 0.3 points to a 2-month low of 52.6, but the composite PMI that includes manufacturing and service sector activity rose to an 8-month high of 53.9.

Russia’s services PMI fell to 53.0, a 4-month low, but its composite PMI of 53.1 was 0.2 points better than August’s score.

Japan services purchasing managers index slumped 1.4 points to a 29-month low in September of 48.2 and was below the 50 demarcation between expansion and contraction for a second straight time. Japan’s composite PMI dropped to a 5-month low of 48.9 from 49.8.

India’s services and composite PMI readings of 52.0 and 52.4 were each lower than 40+ year highs seen in August.

Singapore’s private sector PMI rose 0.6 points to a 19-month high of 52.9.

Hong Kong’s private PMI hit an 18-month high of 49.3 in September, indicating a slower pace of contraction compared to earlier months.  The reading in August was 49.0.

Australia’s services purchasing managers index recovered 3.9 points to 48.9 but remained well below readings in May through July.

The South African PMI compiled by Standard Bank rose 0.5 points to a 3-month high of 48.9.

Among Middle Eastern non-oil PMI surveys, Egypt’s index fell 0.7 points to a 6-month low of 47.0. Saudi Arabia’s score of 55.3 still signals solid expansion but the slowest such pace since June. In the United Arab Emirates, the PMI dropped 0.6 points to 54.1, a 3-month low. Lebanon’s private PMI edged up 0.1 point to a 2-month high of 45.1, which nonetheless corresponds to a pretty sharp rate of contraction.

Brazil’s services PMI was also quite weak at 45.3 in September but less so than in August, which the reading plunged almost 3 points to 42.7. Brazil’s composite PMI was also at a 2-month high in September, a month after it hosted the Olympic Games.

According to ADP U.S. private sector jobs increased by a somewhat smaller-than-expected 154K in September, but that’s ample enough to probably keep the jobless rate south of 5.0%.

The U.S. trade deficit in goods and services widened to $40.7 billion in August from $39.5 billion in July. The January-August deficit of $330.7 billion was 1.3% less than a year earlier.

A 0.2% rise in U.S. durable goods orders during August exceeded expectations of a small decline but nonetheless left such 2.2% lower than the year-earlier level. U.S. corporate earnings reports for the third quarter will start to be released next week.

In the year to August, industrial production fell 8.5% in Ireland and 4.8% in Sweden. Romanian retail sales grew 13.3%, but Australian retail sales posted a smaller 12-month rise of 2.6% versus increases of 2.7% in July and 3.1% in the year to June.

The volume of Eurozone retail sales dipped 0.1% in August, the first monthly drop since March, and was only 0.6% greater than a year earlier.

British shop prices in September were 1.8% below year-earlier levels.

South Korean CPI inflation accelerated to 1.2% in September.

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


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