Wait-and-See Mode

October 24, 2017

With much yet to be learned, investors seem to be of the view that on this day of a thin data release calendar that it’s best to wait and see

  • Whom Trump picks to be the next Fed Chair.
  • The details of ECB quantitative stimulus going forward into 2018
  • Whether the Catalonia crisis ends peacefully or in violence.
  • Whether Xi Jinping plans to hold power past 2022.
  • The details of U.S. tax reform, the likelihood of such being legislated, and implications for the fiscal deficit, growth, inflation, and U.S. politics.
  • Clarity in global geopolitical hot spots like Korea, Iraq, Iran and Niger.

The dollar appreciated overnight by 0.4% against the yen, 0.7% versus the kiwi, 0.3% relative to the Australian dollar, 0.2% vis-a-vis the Swiss franc and sterling and 0.1% against the peso and loonie. The dollar also edged down 0.1% against the euro and yuan.

The main financial market development has been a further advance in sovereign debt yields. Among 10-year maturities, those in Germany, the U.K., France and Italy each climbed four basis points and the U.S. Treasury futures yield is up 3 basis points and just marginally under 2.40%.

Stocks closed up 0.5% in Japan, 0.3% in India and 0.2% in China but down 0.6% in Hong Kong and 0.5% in Singapore. Share prices are down 0.4% in Switzerland but up 0.7% in Italy, 0.4% in Spain, 0.3% in France and 0.2% in Germany. The British Ftse is steady.

Among commodities, copper has risen a bit more than 1.0%, and WTI oil is 0.7% higher. Gold dipped 0.1%.

Preliminary October purchasing managers indices released today show a decline in Euroland’s composite reading to a 2-month low of 55.9, which is still consistent with the 0.7% non-annualized GDP growth in 3Q being maintained at the start of the final quarter of 2017. Manufacturing posted an 80-month high, while services settled back to a 2-month low. Inflationary pressure accelerated to a 6-1/2 year high.

Germany’s composite PMI reading slipped to a 2-month low of 56.9. This score was below France’s composite PMI of 57.5, a 77-month higher, but both imply solidly positive expansion in jobs and GDP.

Japan’s preliminary October manufacturing PMI dipped from a 4-month high of 52.9 in September to a 2-month low of 52.5 this month. Inflation picked up.

Japanese supermarket sales in October recorded an on-year 0.3% dip in October, thus as in June, July, August and September once again failing to post a 12-month increase.

Euroland’s fiscal deficit in the second quarter of 2017 equaled 1.2% of GDP, a bit more than the 1.0% deficit in the previous quarter but the same relative size as in the final quarter of 2016. The deficit-to-GDP ratio had been 1.5% in the second quarter of 2016 and 2.2% in 2Q15.

Euroland’s outstanding fiscal debt-to-GDP ratio edged down to 89.1% in 2Q17 from 89.2% in the first quarter and 90.8% a year earlier. Greece (175.0%), Italy (134.7%), Cyprus (107.6%) Belgium (106.6%), Spain (99.8%) and France (99.3% of GDP) still had very large debt, while Germany (66..0%) and The Netherlands (58.7%) had considerably smaller public sector debt burdens.

The Czech economic sentiment index improved to an 11-month high in October despite some erosion of consumer confidence there.

The unemployment rates of Finland and Poland in September were 8.0% and 6.8%. Finnish PPI inflation that month accelerated 0.2 percentage points to 4.0%.

At the latest monetary policy review in Hungary, the central bank base rate was kept at 0.9% as was expected. It’s been at that level since a 15-basis point cut in May 2016. Inflation of 2.5% is below the 3% target and not expected to return to target until around mid-2019.

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

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