Investors Ponder What the Changes Will Bring

November 11, 2016

The post-election rally of equities hit a bump overnight. Stocks fell 2.5% in India, 4.0% in Indonesia, 1.9% in Hong Kong, 0.7% in Singapore but rose 0.8% in China and Australia. Japan’s Nikkei edged up 0.2% following a huge run-up on Thursday. European share prices are down 1.1% in the U.K., 0.8% in France, 0.9% in Spain, 0.7% in Greece, but up 0.1% in Italy and Germany.

There’s no evidence so far that President-Elect Trump might tone down the radical and controversial plans upon which he campaigned. Just about all of President Obama’s accomplishments will be scrapped including Affordable Health Care and much of Dodd-Frank regulations on financial services. Trade and immigration face substantial change. No appointments have been announced, but the rumored list includes his inner circle as a campaigner, not the establishment republicans from former administrations.

There was a second night of U.S. street protests against Trump in several cities, eliciting from the President-Elect a characterization that such is “very unfair” and inspired by unfriendly media.

So far, Clinton maintains a razor-thin margin of the popular vote. Her 47.7% share is 0.2 percentage points more than Trump’s. There have been three other instances where the electoral college count gave the presidency to a candidate who did not have the most votes, but those instances (1824, 1876, and 2000) did not yield such a wide disparity in the electoral college as happened this time.

During the election, Trump’s economic policy ideas had been criticized by markets and pundits, but this week’s rally has put a different spin on the program. Yes the federal deficit will rise, which for years had been booed by Republicans, but for the short- to medium term, this means the Fed can finally raise interest because both growth and inflation will accelerate. There is a surreal element in that the same facts that had evoked dire predictions in the campaign should now be seen as just what the U.S. economy needs.

The dollar rose another 2.9% against the Mexican peso overnight and by 0.4% relative to the loonie. Trump will either abandon NAFTA or continue such only if major modifications are made.

Against other currencies overnight, the dollar fell back 0.6% versus the yen and 0.1% vis-a-vis the Swiss franc but climbed 0.5% against the Aussie dollar, 0.3% against the kiwi and 0.1% relative to the euro.

In futures trading, the 10-year Treasury rate is now at 2.15%, 78 basis points above last July’s low. The comparable German bund and Japanese JGB yields went up two and one basis points overnight. The 10-year British gilt yield is steady.

Today is the 98th anniversary of the end of the first world war, commemorated as Veteran’s Day in the United States, Remembrance Day in Canada, and Armistice Day in much of Europe.

West Texas Intermediate crude oil retreated 1.4% to $44.03 per barrel. The recovery of oil in recent months impacted inflation data in an upward direction released today.

German consumer price inflation accelerated to a two-year high of 0.8% in October, twice the pace in July-August and 0.9 percentage points above the 2016 trough of negative 0.1% last April. Energy prices were only 1.4% below year-earlier levels in contrast to a 7.0% on-year drop in July.

German wholesale prices rose 0.4% on month in October, matching September’s increase. There was a 0.5% on-year increase, the first positive 12-month change in over a year. Mineral fuel prices rose 3.6% on month after a 3.6% rise in September.

Japanese domestic corporate goods price deflation fell narrowed to 2.7% in October from 3.2% in September and 3.8% in October 2015. Import prices increased 1.1% on month in October after a 0.6% September advance.

The dollar strengthened in instant response to the election result over recent days. Trump’s ideas on trade suggest that efforts will be made to depreciate the U.S. currency and make exports more competitive. Dollar demand had depressed gold, which slid 0.8% overnight to $1,255.70 per ounce.

The Central Reserve Bank of Peru left its policy interest rate unchanged at 4.25%, its level since a 25-basis point increase engineered last February.

The Bank of Korea’s 7-day repo rate was kept at 1.25%. Such had been cut by 25 basis points back in June. South Korean monetary officials wonder how changes in U.S. defense policy and trade policy will affect their economy.

Officials at the Monetary Authority of Singapore expressed a readiness to curtail excessive volatility in their exchange rate if that is deemed necessary but also noted that for now the currency remains within its target band.

Japan’s tertiary index, a gauge of service sector activity, dipped 0.1% in September on top of no change in August. The index was 0.4% higher in the third quarter than in 2Q and 0.7% above the third quarter 2015 average.

New Zealand’s purchasing managers index in manufacturing slipped to a 2-month low of 55.2 in October from 57.7 in September. Aside from a 55.1 reading in August, October’s PMI was the lowest since March.

Malaysian GDP grew 1.5% last quarter and by 4.3% from a year earlier. September industrial production was 3.2% greater than a year before.

Hong Kong GDP rose 0.6% last quarter and was 1.9% above the 3Q15 level.

British construction output increased 0.3% in September, beating forecasts, but fell 1.1% in the third quarter, its weakest quarterly result in 4 years. Construction exceeded the  year-earlier level by only 0.2% in September and 0.1% in 3Q.

Sweden’s jobless rate stayed at 4.0% last month.

The preliminary U. Michigan/Reuters measure of consumer confidence in November will be released a little later.

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



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