Markets Back to Feeling Uneasy about the Future

November 28, 2016

U.S. stocks opened lower. In Europe, share prices started the cusp week between November and December on the back foot, falling so far by 2.8% in Greece, 0.8% in Italy, 0.7% in Germany, 0.4% in the U.K., 0.5% in France, and 02% in Switzerland and Spain. Equities also fell 0.8% in Australia, 0.2% in Indonesia and 0.1% in Japan.

Sovereign debt prices rebounded, with 10-year yields dropping 4 basis points in Germany, 3 bps in the U.S. and U.K., 2 bps in Japan, and a basis point in Switzerland and Canada.

Gold is still trading below $1,200 but has risen 0.7% to $1,189.60 per troy ounce.

Great confusion precedes Wednesday’s upcoming OPEC meeting in Vienna. The Saudis are resisting the need to reduce production, while remarks from Iraqi officials remain optimistic about reaching a deal. WTI crude rose 2.1% to $47.04 per barrel.

The dollar, which had performed very well in the wake of the U.S. election, slid today by 0.6% against the loonie, 0.5% versus the yen, 0.3% relative to the New Zealand and Australian monies, and 0.1% vis-a-vis the yuan. The dollar rose 0.2% against sterling, 0.1% versus the Swiss franc and, most interestingly, 2.3% against the Mexican peso.

Several factors account for the more cautious investor mood.

  • As president-elect, Donald Trump remains aggressive in parrying all perceived slights. He denounced calls for a vote recount in some states “sad,” a waste of money and time, and a threat to the need for the country to come together. Moreover, he is attributing the 2.2 million more voters that Clinton got than  he to fraud that enabled millions of ineligible voters to vote.
  • There has been confusion over some key Trump administration appointments, especially at State, and doubts have arisen over whether the Trump fiscal policy changes lift growth and generate more satisfactory inflation.
  • Italy faces a referendum next weekend on constitutional reform. Prime Minister Renzi is likely to resign, preventing several Italian banks from securing needed refinancing, if the reforms are rejected by voters.
  • Investors await an important speech by ECB President Draghi. There is concern that the central bank may not extend quantitative support beyond March to the extent that will be needed.
  • The OECD published a new Outlook that while modestly bumping projected growth higher depicts a global economy still mired in a “low-growth trap.” The report speaks of great uncertainty regarding policy.

Euro area money growth hit an air pocket in October, slowing to 4.4% on year from 5.1% in the prior two months. M1, M2-M1, and M3-M2 each recorded slower expansion. Private lending growth remained weak.

The OECD growth forecasts for next year envisage GDP rising 2.3% in the United States, 1.6% in Euroland, 1.2% in the U.K., 0.9% in Japan, 2.0% in the OECD (a collection of advanced economies), 4.5% in other parts of the world, and 3.3% as a whole. The growth in world trade is expected to slow from 2.6% in 2015 to 1.9% this year.

Italian business sentiment weakened to a reading of 102.0 in November from 102.9 last month. Italian consumer confidence edged down 0.1 point to 107.9.

Swedish retail sales volume rose 0.7% in October after slipping 0.3% in September was was 2.4% greater than in September 2015. Sweden posted an SEK 2.7 billion trade deficit  in October versus a shortfall of SEK 3.1 billion a year earlier. The 3.5% on-year growth of import volume last quarter surpassed a 1.3% increase in exports.

Finnish business sentiment in manufacturing worsened to -4 in November from -2 in October. But consumer confidence improved to a 66-month high.

Irish retail sales volume fell in September by 0.3%, its third straight decline.

Norwegian retail sales volume rose 0.9% in October but was  just 0.7% greater than a year earlier.

The Dallas Fed reports its manufacturing index later today.

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



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