More Surprises

January 3, 2017

German inflation accelerated sharply in December.

The Chinese manufacturing purchasing managers index compiled by Caixin rose a full point to a 47-month high of 51.9 in December. The production subindex reached its best level since January 2011.

A Kuwaiti decision to reduce oil production sent WTI crude up 2.1% to $54.87 per barrel, highest since early July 2015.

Euphoria continues that the Trump administration will shake up U.S. foreign and economic policy in a radical way during its first couple of weeks and that this will fuel a continuing rotation of investment money from fixed income assets into equities. The transformation of market sentiment is nothing short of surreal — one might even say rigged — given how fearfully his potential presidency had been viewed in the financial press during the year leading up to November’s election.

The dollar climbed an additional 0.7% against the euro and Swiss franc overnight. It rose 0.6% against the yen and 0.2% relative to the yuan and loonie but fell 0.3% vis-a-vis the Australian and New Zealand dollars. The trade-weighted dollar hasn’t been as strong as now in over ten years.

Gold dipped 0.2% to $1,149.50 per ounce. Industrial metal prices are higher.

Ten-year sovereign debt yields in Europe rose today by 9 basis points in Italy and the U.K., 8 bps in France and Switzerland, and 6 bps in Spain and Germany. Treasury futures point to a yield jump of slightly more than 5 bps.

Japan and New Zealand markets remained closed in observance of the New Year holiday.

Share prices in the Pacific Rim rallied 1.2% in Australia, 1.0% in China, 0.9% in South Korea, 0.6% in Singapore, and 0.3% in Hong Kong. Stocks in Europe are up 0.9% in Switzerland, 7 bps in Italy, and 5 bps in the U.K., Spain, France and Greece. The German Dax is unchanged, however.

December regional CPI data from Germany put December-over-December inflation at 1.9% in Hesse and North Rhine Westphalia, 1.8% in Saxony, 1.7% in Bavaria and Brandenburg, and 1.6% in Baden-Wuerttemberg. These figures are roughly double November’s inflation rates and belie the deflationary mindset that had previously reigned.

Germany also reported a much greater-than-forecast 17K drop in unemployment last month. Job vacancies rose 8K in December, and employment was 0.7% higher in November than a year earlier.

Among released purchasing manager manufacturing surveys reported today,

  • The British PMI rebounded 2.5 points to a 30-month high of 56.1 in December, even eclipsing September’s 27-month peak. Inflation intensified.
  • The Irish PMI rose 2.0 points to a 17-month high. Growth in jobs, production and demand went up.
  • From a 33-month high of 56.6 in November, Switzerland’s PMI settled back to 56.0, which was still comfortably above October’s reading of 54.7.
  • Australia’s Performance of Manufacturing index climbed 1.5 points to a 68-month high in December but was accompanied by an intensification of input price pressure.
  • Taiwan’s purchasing managers index printed at 56.2 last month, also constituting a 68-month high after 54.7 in November.
  • The Vietnamese PMI settled back to 52.4 in December after hitting an 18-month high of 54.0 in November, but exports grew sharply.
  • Malaysia’s PMI stayed at November’s 5-month low of 47.1, signifying a contractionary trend.
  • Indonesia’s PMI fell 0.7 points to a 2-month low of 49.0.

Real on-year GDP growth accelerated to 1.8% in Singapore last quarter from 1.1% in the third quarter.

December-over-December advances in Turkish consumer prices of 8.5% and producer prices of 9.9% were each considerably higher than November changes.

Portuguese consumer sentiment rose 2.3 points to a reading of minus 8.2 last month.

U.S. construction spending will be reported today. So too will be the ISM manufacturing PMI and the New York regional PMI, known as the NAPM index.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


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