Market Breather as Week Draws to a Close

December 16, 2016

Relentless market trends since the U.S. election characterized by a rising dollar and higher share prices but weaker bond and gold prices paused on this final day of the week. The weeks before and after Christmas are potentially unpredictable even in times not characterized by high uncertainty. Action at the yearend holidays ranges from listless to erratic and often prove misleading regarding what happens in the subsequent year.

10-year sovereign debt yields fell today by five basis points in Germany, 3 bps each in Switzerland and the U.K., and one basis point in Japan and U.S. Treasuries.

The dollar is unchanged against the Swiss franc, sterling and the yen and has slipped 0.1% against the euro.

Gold and WTI oil have climbed 0.3% to $1,133 per ounce and 0.8% to $51.28 per barrel.

But commodity-sensitive currencies have continued to lose ground on the U.S. currency. The kiwi dropped 0.9% and slipped below the 70-U.S. cent level. The Aussie and Canadian dollars fell 0.6% and 0.2%. The yuan also slid 0.2%, and the Mexican peso is down 0.3%. Copper ended a bad week with a further drop of nearly 1%.

Net changes in European share prices are insignificant today as were those in the Pacific Rim.

President Obama will hold a press conference at 14:15 EST today. Relations between the Obama people and Trump people have soured over Russia.

The Bank of Russia’s last monetary  policy meeting of 2016 ended with a decision to leave the key interest rate unchanged at 10.0% and more ambiguity on how soon further easing might be possible. The rate had been cut by 50 basis points earlier this year both in June and September and by six percentage points during the first seven months of 2015, but the downward stickiness of inflation and expected inflation has compelled officials to halt easing until clearer disinflation becomes apparent.

South African markets were shut today as that country observed its annual Day of Reconciliation.

Final Euroland consumer price data confirmed an on-month 0.1% dip in the total CPI and year-on-year inflation of 0.6%, up from 0.1% in the prior year to November 2015. Core inflation was at 0.8% for a fourth straight month and down from 0.9% a year earlier. Energy fell just 1.1% on year compared to a 7.3% decline over the twelve  months to November 2015. Italy, Spain, Greece, The Netherlands, and Ireland each have less inflation now than the euro area average.

Euroland’s seasonally adjusted trade surplus narrowed EUR 4.7 billion in October to an 8-month low of EUR 19.7 billion. Imports climbed 3.0% on month while exports fell modestly for a second straight month. Both exports (-4.6%) and  imports (-3.2%) were noticeably weaker than a year earlier. The year-to-October surplus of EUR 223.8 billion was considerably bigger than that of EUR 181.4 billion in the first ten months of 2015.

The CBI’s December monthly survey of British industrial sector trends produced an 18-month high in the closely watched orders component, printing at zero compared to a 2016 low-point of -17 in October.

French manufacturing sector business confidence jumped four points to a reading of 106 in December, best since August 2011. Confidence in the retail sector at 107 was also the highest in a couple of years. France’s index of leading economic indicators increased 0.3% in October, and so did French labor costs during the third quarter. Compared to a year earlier, labor costs were 1.4% higher.

Italy’s trade surplus of EUR 4.3 billion in October followed a EUR 3.7 billion surplus in September and was similar to a year-earlier surplus of EUR 4.6 billion.

Greek unemployment shrank to 22.6% last quarter from 23.1% in the second quarter of 2016.

Bank of Canada Governor Poloz called the coming year challenging to the economy, noting the weakness of exports and possible risks to financial stability.

Consumer confidence in New Zealand fell 2.1% in December, reversing part of November’s improvement.

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



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