Investors Disregard Italian Referendum Result and Renzi’s Resignation

December 5, 2016

There was only a fleeting market response to the latest giant step for world populism and anti-globalization. Italy’s government suffered a very poor showing in the constitutional referendum held yesterday. Prime Minister Renzi’s Democratic Party barely captured two of every five votes, and Prime Minister Renzi resigned, setting the state for anti-euro sentiment in the next government and a deepening banking crisis.

The euro briefly hit a dipped to its lowest value since April 2015 against the dollar but is now 0.7% stronger than Friday’s close. The common currency recovered even more ground against the yen, which also fell 0.8% against the dollar.

Share prices in Europe are up 1.6% in Germany, 0.9% in Switzerland and France, and 0.8% in Spain and Greece. The Ftse, by comparison, is just 0.2% firmer, and stocks fell 1.2% in China, 1.0% in New Zealand, and 0.8% in Japan and Australia.

Beijing is in U.S. President-Elect Trump’s cross-hairs. He criticized Asia’s biggest economy on several scores and is elevating Taiwan to more-favored nation status.

China’s composite purchasing managers index for November held at October’s 43-month high of 52.9, nonetheless. The services PMI compiled by Caixin advanced 0.7 points to a 16-month high of 53.1.

Sovereign debt yields have recorded big advances of 8 bps in Germany, 6 bps in the U.K. and 5 bps in 10-year U.S. Treasuries.

As the quintessential store of value in risk averse times, gold dropped another 1.4%. WTI crude oil is 0.3% higher.

A slew of other purchasing manager survey results for November were released.

The U.S. Institute of Supply Management’s non-manufacturing PMI increased 2.4 points to a 13-month high of 57.2.

Euroland’s composite PMI rose 0.6 points to an 11-month high of 53.9. The Ezone’s services PMI improved a full point to 53.9.  The data are consistent with GDP growth this quarter of roughly 0.4%.

  • Germany posted composite and services PMI readings of 55.0 and 55.1, a 2-month low and 6-month high. It looks like German GDP will advance 0.5% in the quarter.
  • Ireland’s scores of 55.5 composite and 56.0 services are 3- and 2-month highs.
  • Spain’s 55.2 composite PMI and 55.1 services reading constitute 5- and 3-month highs, suggesting growth of about 0.7% on quarter.
  • Italy’s 53.4 composite PMI is a 9-month high. So is the services score of 53.3, and GDP seems poised for growth  of 0.2%.
  • In France, the services rose to 51.6, a 2-month high, but the composite PMI of 51.4 was at a 4-month low. Growth will be around o.25%.

The Sentix gauge of investor sentiment toward the euro economy retreated 3.1 points to 10.0 in December, which was still the second highest reading of the year.

Euroland retail sales volume grew by a better-than-forecast 1.1% in October. The level was 0.8% greater than the 3Q average and 2.4% greater than in October 2015.

Japan’s composite PMI improved 0.7 points to 52.0 in November, helped by a 10-month high in the services PMI, which at 51.8 exceeded the 50 no change level for a second straight months.

However, Japanese consumer confidence fell 1.4 points to a 6-month low of 40.9, depressed by lackluster wages and concerns about changing U.S. friendliness toward Asia.

In contrast to China’s improved PMI, India’s composite PMI swung from a 45-month high of 55.4 in October to a sub-50 score of 49.1 in November. A services PMI reading of 46.7 after 54.5 was close to a 3-year low. The drop reflected a policy-imposed cash shortage and is expected to be temporary.

Russia’s services and composite PMIs of 54.7 and 55.8 in November are 4-month highs. In President-elect Trump’s view of the world, Russia is useful, while China is problematic.

Brazil’s 44.4 PMI in services and 45.3 composite reading remained very weak but were above October scores.

Australia’s Performance of Services index rose 0.6 points to a 4-month high of 51.1. In a separate report, Australian corporate profits rose 1.0% last quarter, much less than the second-quarter’s 6.5% increase.

Hong Kong’s private PMI improved 1.3 points to a 20-month high of 49.5. Singapore’s private PMI recovered 2.3 points to a 2-month high of 52.8.

The U.A.E. and Saudi Arabian non-oil PMIs of 54.2 and 55.0 in November were 3- and 2-month highs. Lebanon’s private PMI was at a 9-month high but below 50 at 46.9. Egypt’s non-oil PMI slipped further to 41.7, a 40-month low.

Turkish consumer prices and producer prices increased 7.0% and 6.4% between November 2015 and November 2016.

The Federal Reserve’s labor market conditions index edged 0.1 point higher in November to a 4-month high of 1.5 but was well below the November 2015 level of 3.3. The Fed is expected to raise the federal funds rate this month. But it will only be the first change in a year, and the size of the move will be small at 25 basis points.

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



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