Favorable Developments

October 24, 2016

Stocks strengthened. Long-term bond yields slipped a bit. Preliminary purchasing managers indices in October beat expectations. Japan’s trade surplus widened on better-than-anticipated exports. Portugal’s credit rating avoided a downgrade. Spain’s stalled politics took a step forward. Corporate news has been more supportive than assumed.

The dollar is narrowly mixed. it’s up 0.2% against the yuan and Australian dollar and 0.1% relative to the loonie and yen. It’s unchanged against sterling but down 0.2% against the euro and 0.1% relative to the kiwi and Swiss franc.

Share prices in Europe are up 1.5% in Spain, 1.0% in Italy,0.9% in Germany, and 0.8% in France. Stocks in the Pacific Rim rose 1.2% to a 9-month high in China, 1.0% in Hong Kong, 0.9% in Singapore, 0.7% in South Korea, 0.3% in Japan, and 0.2% in Indonesia and Taiwan. Equities lost 0.4% in Australia and New Zealand.

WTI crude oil at $50.29 per barrel dropped 1.1%. Iraq wants to be excluded from OPEC production curbs. Comex gold is 0.3% higher at $1,272 per ounce.

The 10-year British gilt and German bund yields are 3 and 1 basis points down from Friday.

Japan’s purchasing managers index in manufacturing rose 1.3 points to 51.7 in October, which is a 9-month high. Jobs grew at their best pace in 2-1/2 years.

Euroland’s PMI news was also better than anticipated.

  • The composite Ezone PMI rose 1.1 points to a 10-month high of 53.7. Manufacturing jumped to a 30-month peak, and services rose to a 9-month high. The data are consistent with 0.4% quarterly growth at the start of the fourth quarter.
  • Germany’s composite, services, and manufacturing purchasing manager indices of 55.1, 54.1 and 55.1 were at 3-, 3- and 33-month highs in October and suggest economic growth in Euroland’s largest member of around 0.5%.
  • The French manufacturing PMI increased 1.6 points to a 10-month high of 51.3. But the services PMI dropped 1.2 points to a 3-month low of 52.1, depressing the composite PMI to a 2-month low and suggesting nonannualized quarter on quarter growth of only about 0.25% at the start of the quarter.

Japan’s September customs trade position was in surplus by JPY 498 billion not adjusted (almost 50% more than street expectations). The seasonally adjusted surplus was JPY 349 billion versus JPY 364 billion in August and JPY 308 billion in July. On-year export contraction slowed to 6.9% in September from 9.6% in August.

Japan’s index of leading economic indicators for August was revised down 0.3 points but was still at the strongest level since November 2015.

Japanese supermarket sales fell 3.2% in the year to September, similar to the 2.9% drop in August.

The British CBI industrial trends index fell twelve points to an 8-month low of negative 17.

Czech economic sentiment improved to a 9-month high in October on stronger consumer confidence.

Portugal retained an investment-grade credit rating from DBRS.

Spain’s Socialists deferred to letting Prime Minister Rajoy begin a second term, ending a prolonged political logjam.

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




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