Post-Election Market Moves Trimmed a Bit

November 15, 2016

Sovereign debt yields and the dollar eased this Tuesday, one week after the U.S. election. Oil and gold rebounded. Stocks are mixed. Euroland GDP, British consumer prices, and Reserve Bank of Australia minutes were released. The German ZEW Institute’s monthly index of investor sentiment reflected a drop after the U.S. election. One Fed official, Lacker, said Fed interest rates may now have to rise faster. Another, Williams, urged restraint in the imposition of trade restrictions.

The dollar fell 1.3% against the Mexican peso, 0.2% versus the euro and Swiss franc, and 0.1% relative to the Australian dollar and kiwi. The yuan is unchanged, but the dollar extended gains against the yen and sterling by over 0.5%.

The 10-year German bund and 10-year U.S. Treasury futures yields are five basis points lower but still exceed month-ago levels by 25 and 40 basis points. The 10-year British gilt yield is unchanged, and the 10-year Japanese JGB has risen 2 basis points.

West Texas Intermediate crude oil rallied 3.3% to $44.74 per barrel. Comex gold is 0.3% higher.

Share prices in the Pacific Rim were unchanged today in Japan, down 1.9% in India, 0.7% in Indonesia, and 0.4% in South Korea and Australia. These drops were balanced by equity advances of 0.5% in Kong Kong and 0.4% in New Zealand and Singapore. In Europe, the British Ftse has risen 0.5%, and the Paris Cac is up 0.2%. But stocks fell 0.6% in Italy, 0.4% in Greece, and 0.1% in Germany.

Euro area real GDP increased 0.3% last quarter, same as in 2Q. Likewise, on-year growth of 1.6% was the same as in the second quarter and the third quarter of 2015. This stability masks weakening momentum in Germany and Belgium (0.2% each) but faster growth of 0.2% in France and 0.3% in Italy. Spanish GDP grew 0.7% following three straight quarterly 0.8% increases. Dutch GDP also expanded 0.7%, while the Greek pace accelerated to 0.5%.

Third-quarter growth among economies in Eastern Europe slowed to 0.6% from 1.5% in Romania, to 0.2% from 0.8% in Poland, to 0.3% from 0.9% in the Czech Republic, and to 0.2% from 1.0% in Hungary.

Euroland’s seasonally adjusted trade surplus widened from EUR 23.4 billion in August to a 5-month high of EUR 24.9 billion in September and imports contracted by 1.6%. The year-to-September surplus of EUR 204.8 billion was 21% wider than a year earlier, reflecting a 3.1% drop in imports. A major objective of the incoming Trump administration is to eliminate the chronic U.S. trade surplus. While a lot of attention here is focused on commercial policies vis-a-vis emerging markets in Latin America and Asia, Germany too will be in the cross-hairs.

Germany’s ZEW expectations index of investor sentiment printed at a 5-month high of 13.8 in November despite a dip in current conditions. Euroland’s sentiment gauge was 15.8 versus 12.3 the month before, but ZEW officials noted that responses received after the U.S. election were weaker than those before such.

British CPI inflation unexpectedly slowed to 0.9% in October from 1.0% the month before. Bank of England Governor Carney opined that such would not change the outlook. Sterling depreciation should boost import prices. Core CPI in October also slipped, reaching 1.2% versus 1.5% in September. In line with Carney’s remark, producer output prices and producer input price inflation each accelerated, reaching 2.1% for the former but a double-digit 12.2% in the latter case. The government’s measure of British house price inflation was 7.7% in September, same as a downwardly revised August figure.

French CPI inflation held steady at 0.4% in October, although core slid 0.2 percentage points to 0.5%.

Swedish and Spanish CPI inflation in October accelerated to 1.2% and 0.7%.

The minutes from the Reserve Bank of Australia’s policy meeting earlier this month reflect less dovishness about the outlook for inflation and the future direction of monetary policy there. Certainly any notion of cutting the official cash rate at December’s meeting looks remote now. There is no meeting in January.

Rudy Giuliani is said to be President-Elect Trump’s favored choice for Secretary of State. He is a former mayor of New York. Before that he made a big reputation prosecuting Wall Street abuses in the early 1980s as  Rudy Giuliani  as associate attorney general in the Reagan administration.

Among released U.S. data, retail sales jumped 0.8% in October following a 1.0% rise in September. The Empire State manufacturing index improved much more than forecast in November, swinging from a -6.8 reading in October to 1.5 this month. U.S. import price inflation also quickened, with a monthly 0.5% rise in October and only a 0.2% on-year dip versus declines of 1.1% in September, 2.2% in August and 10.7% in October 2015. Imported fuel cost 3.8% more than a year earlier in October versus an on-year plunge of 47.4% between October 2014 and October 2015. Non-fuel imported price deflation shriveled up to 0.4% in October from 3.2% a year earlier.

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


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