Markets Assuming Powell Getting Named Fed Chair

November 2, 2017

President Trump will formally announce his choice of Federal Reserve chairperson today at 15:00 EDT. The worst kept secret is that Jerome Powell will likely get the nod. Although a lawyer by training, his career has been immersed in financial markets.

Other top news:

  • Euroland’s October purchasing managers index rose 0.4 points to an 80-month high of 55.8. Conditions improved at their second fastest pace in over 17 years, but firms are finding it more difficult to keep up with the pace of incoming orders. Order backlogs are the most ever since this data series began. Inflationary pressure is rising.
  • By a 7-2 vote, the Bank of England monetary policy committee doubled the Bank Rate to 0.50%, a level that had prevailed from March 2009 until such was halved in August 2016 in the wake of the Brexit referendum. Quantitative stimulus limits were not changed. The statement released after the meeting asserted that “the steady erosion of slack has reduced the degree to which it is appropriate for the MPC to accommodate an extended period of inflation above the target.  Unemployment has fallen to a 42-year low, and the MPC judges that the level of remaining slack is limited.  The global economy is growing strongly, domestic financial conditions are highly accommodative, and consumer confidence has remained resilient.  In line with the framework set out at the time of the referendum, the MPC now judges it appropriate to tighten modestly the stance of monetary policy in order to return inflation sustainably to the target.” This rate hike was widely discounted in the market.
  • The Czech National Bank also doubled its key two-week repo rate to 0.50%. A 20-basis point increase on August 3rd had been this central bank’s first interest rate change since November 2012.
  • Japanese consumer confidence improved to a reading of 44.5 in October, best since May of 2013. The index had been at 43.something from December 2016 through September.
  • The U.S. House of Representatives will introduce a tax cut bill today if all goes according to plan.
  • U.S. nonfarm labor productivity leaped 3.0% last quarter, twice as much as the second-quarter increase, and was 1.5% higher than a year earlier. In the prior year to 3Q16, productivity had dipped 0.1%. Unit labor costs rose only 0.5% on quarter after a 0.3% uptick in 2Q and were 0.1% lower than in the third quarter of 2016.

The dollar weakened overnight by 0.4% against the Swiss franc, 0.3% relative to the euro and Aussie dollar, 0.2% versus the kiwi and peso, and 0.1% vis-a-vis the yen. Ironically, the dollar is 0.4% higher against sterling.

Share prices are somewhat softer, a 0.5% rise in Japan’s Nikkei being a notable exception. Other markets in the Pacific Rim fell 0.4% in China and South Korea, 0.3% in Singapore, 0.2% in Hong Kong and Taiwan and 0.1% in India, Indonesia and Australia. In Europe, stocks are trading 0.2% lower in Germany, France and Spain but 0.3% higher in the U.K..

The 10-year German bund yield is up 2 basis points. The comparable British gilt is steady, and the JGB has slipped a basis point.

Industrial metal prices gave back some of their recent gains. WTI crude oil is off 0.2% at $54.22 per barrel. Gold is unchanged at $1,277.20 per ounce.

All individual reporting members of the European Monetary Union had PMI scores in October that exceeded 50, thus implying improved conditions in the factory sector:

  • Germany: 60.6, unchanged from September’s 77-month high.
  • The Netherlands: 60.4, an 80-month high.
  • Austria: 59.4, unchanged from September’s 4-month low.
  • Italy: 57.8, an 80-month high.
  • France: 56.1, unchanged from September’s 77-month high.
  • Spain: 55.8, a 29-month high.
  • Ireland: 54.4, a 7-month low.
  • Greece: 54.4, a 3-month low.

The Filipino manufacturing PMI increased 2.9 points to a 4-month high of 53.7.

Poland’s factory PMI eased back to a 2-month low of 53.4 from September’s 5-month high of 53.7.

The British construction purchasing managers index rebounded to a 2-month high of 50.8 in October from 48.1 the month before. Analysts were anticipating another sub-50 score.

Year-on-year growth in Japan’s monetary base slowed to 14.5% in October from 15.6% in September, 15.8% in the third quarter, 20% in the first half of 2017, 25.0% in 2016 and 34.0% in 2015. The Bank of Japan’s balance sheet rose JPY 4.6 trillion during October and by 41.5 trillion yen thus far in 2017, or roughly 8.7%.

Australia’s trade surplus in September equaled A$ 1.745 billion, more than the combined July-August surplus of A$ 1.574 billion. Australian building permits rose 1.5% in September, a much better outcome than expected that resulted in a surprising 0.2% on-year rise.

Swiss consumer confidence improved a point in October to its most optimistic level since July 2014.

German unemployment fell by 11K workers last month, and September’s level of employment was 1.5% greater than a year earlier.

Romanian PPI inflation accelerated 0.2 percentage points to 4.3% in September.

U.S. jobless insurance claims fell 5K last week to 229K and averaged 232.5K over the past four reported weeks. That 4-week average is down from 268.25K in the prior four weeks to September 30th but below a 241K mean in the 4 weeks to August 5th. The intervening upward blip was associated with a trio of hurricanes.

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


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