A Week Begins Fraught with Possibility

October 30, 2017

U.S. President Trump has promised to reveal his choice for Fed Chairperson this week before leaving for Asia on Friday. Jerome Powell is perceived to be the likeliest choice. Although presently a member of the Fed Board of Governors, Powell is not an economist by training. Over the past 47-1/2 years, economists have chaired the Fed for all but 18 months. Powell earned his undergraduate degree at Princeton in 1975 and a law degree from Georgetown. Before joining the Fed, he’d worked in investment banking at Dillon Read and the Carlyle Group and served some time as an Assistant Treasury Under-Secretary in the Bush41 administration. He’s thought likely to prefer a more hawkish policy stance than the Fed has pursued under Chair Janet Yellen’s stewardship.

There are monetary policy meetings this week at the Fed, Bank of Japan and Bank of England. The last of these is thought likely to raise its key interest rate back to 0.50%, the level for several years prior to August 2016. This would be the first rate hike in a decade.

The U.S. Special Prosecutor Robert Meuller is said to be paused to announce his initial arrests in connection with the investigation into Russian meddling in the 2016 election.

Europe went off daylight savings time this past weekend. Until the U.S. does likewise on November 5, the difference between time in N.Y. and London will be four hours instead of the usual spread of five hours.

The dollar is up 0.3% against the euro, unchanged relative to the yen, Swiss franc and Australian dollar and down 0.4% versus sterling.

Stocks in the Pacific Rim fell 0.8% in China and 0.4% in Hong Kong but closed unchanged in Japan and with gains of 0.5% in Taiwan and 0.8% in New Zealand. The Spanish government declared the Catalan government dissolved, but in the absence of violence there so far, the Spanish IBEX rebounded 1.5%. In other European stock markets, share prices are up 0.4% in Italy and 0.1% in Germany but flat in France and 0.3% lower in Britain.

The ten-year German bund yield is up a basis point, and it’s British counterpart is a basis point lower. Japan’s 10-year sovereign debt yield remains unchanged at 0.06% ahead of tomorrow’s monetary policy decision and release of new macroeconomic forecasts. The BOJ is not expected to changed policy.

West Texas Intermediate crude oil is steady at $53.92 per barrel. Comex gold is marginally firmer at $1,273 per ounce.

Today’s biggest data release has been news that economic sentiment in the euro area improved by a greater-than-anticipated 0.9 points in October to a reading of 114.0, and that’s the most optimistic score since January 2001. All components of the index improved, and the parallel economic climate index rose 0.10 points to an 80-month high.

Other notable data releases today showed

  • A 0.5% monthly rise in German retail sales volume in September. Sales rose 0.3% on quarter in 3Q and 4.1% on year in September.
  • A 0.3-point rebound in Austria’s manufacturing purchasing managers index to a robust 59.4 reading. The PMI has been 58.0 or better since April. A score of 50 separates expansion from contraction.
  • The Swiss index of leading economic indicators leaped 2.8% in October and at 109.1 was the highest level since September 2010.
  • Consumer price inflation slowed in October in the German states of North Rhine Westphalia, Hesse, Baden Wuerttemberg, Bavaria and Saxony, ranging between 1.5% and 1.8%.
  • The Bank of England reported on-year core M4 money growth of 4.3% in September and a 3-month low in mortgage approvals of 66,232.
  • Spanish real GDP grew 0.8% on quarter and by an unchanged 3.1% on year in the third quarter of 2017.
  • Spanish CPI inflation slowed 0.2 percentage points to 1.6% in October.
  • German unemployment fell by 18K workers in September, and as a percent of the labor force touched a new low for the move of 5.6% after printing at 5.7% for four straight months. Employment expanded 1.5% on year in the third quarter, same as in the first half of the year.
  • Portuguese retail sales and industrial production in September were respectively 4.1% and 2.8% greater than a year earlier.
  • Greek and Austrian producer prices were up by 4.8% and 1.8% on year in September.

Japanese retail sales rose 0.8% on month in September, their third advance in four months, and were 2.2% greater than a year earlier.

Last Friday, the central bank in Colombia voted 5-2 in favor of another cut in the benchmark interest rate, which at 5.0% is now 275 basis points lower than 7.75% at the end of November 2016. Core inflation has been declining, and economic growth is weaker than 2.0% in that economy.

U.S. personal income and personal consumption expenditures respectively jumped 0.4% and 1.0% in September, the latter slightly exceeded expectations. The personal consumption price deflator rose 0.4% on month and accelerated 0.2 percentage points to 1.6%, but the core PCE deflator went up just 0.1% on month and remained unchanged on year at 1.3%, still well below the Fed’s 2% target.

Still to come: Dallas Fed manufacturing index.

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

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