Trump Comments, More PMI Surveys, and Some Central Bank Signals

November 6, 2017

President Trump in Japan returned to his call for “fair” bilateral trade relationships. To reduce Japan’s surplus with America, he’d like to see more Japanese buying of U.S. military equipment.

Euroland’s service sector and composite purchasing managers indices slipped to a 2-month low of 55.0 and 56.0, respectively. Each result was revised up a tenth percentage point from earlier preliminary indications for October. The data suggest that the euro area economy at the start of the fourth quarter was expanding at a similar 0.6-0.7% non-annualized speed that had been recorded in the third quarter. Business sentiment exceeds its long term average, and new business growth accelerated in the latest months.

Among Euroland members, the French composite and service sector PMIs in October rose to 77- and 7-month highs. In the cases of Germany, Ireland, Spain and Italy, however, October PMI readings were lower than those from September.

Sweden’s service-sector purchasing managers index fell another 2.1 points to a 9-month low of 61.4 in October. In a separate report, Swedish industrial production leaped 2.4% in September and was 3.6% greater than a year earlier. Output in the third quarter was 5.1% higher than a year earlier.

Japan’s services PMI jumped 2.4 points to 53.4 in October, which is a 26-month high. Business sentiment strengthened, and orders were at a 53-month peak. Japan’s composite purchasing managers index as a consequence rose 1.7 points to a 5-month high of 53.4.

The non-oil purchasing managers indices for Saudi Arabia and the United Arab Emirates increased in October to 2-month highs of 55.6 and 55.9, each implying robust activity growth. Egypt’s non-oil PMI printed higher at 48.4 last month, indicated a slower rate of contraction than experienced in September but a faster slide than in August.

The Brazilian services and composite purchasing managers survey scores were at 3- and 2-month lows in October of 48.8 and 49.5. Being below 50, such indicates mild contraction of activity.

Minutes from the Bank of Japan’s Board meeting of September 20-21 highlight the dissent of a new member of the committee. Kataoka doubts that current stimulus is enough to lift demand sufficiently to absorb all unused capital stock and lift inflation to its target. He preferred an augmentation of the bank’s ultra-loose policy but was on the short end of an 8-1 vote.

Bank of Japan Governor Kuroda delivered a speech today that was upbeat about Japan’s economic prospects and said stimulus would continue for a long time further. But he also reiterated that prolonged quantitative stimulus carries risks to the financial sector.

European Central Bank Governing Council member Praet defended the asset buying and negative interest rate as necessary factors in order to lift inflation in the euro area to the central bank’s target.

In market action overnight,

  • The dollar is narrowly mixed, with dips of 0.4% relative to the peso, 0.2% versus the Australian dollar and sterling, and 0.1% vis-a-vis the yuan, no change against the loonie, and upticks of 0.2% against the euro and 0.1% versus the yen, Swissie, and kiwi.
  • Japan’s Nikkei closed unchanged. Elsewhere in the Pacific Rim, stocks dropped 1.0% in Australia, 0.3% in South Korea, and 0.2% in New Zealand but rose by 0.5% in China, 0.2% in Indonesia and 0.1% in Hong Kong and India.
  • Stocks in Europe have traded down 0.8% in Greece, 0.3% in Spain and Italy, and 0.2% in Germany and France. The British Ftse is flat.
  • Ten-year sovereign debt yields have slipped 3 basis points in Japan, 2 bps in Germany and a single basis point in the U.K..
  • The uptrend of oil continues. West Texas Intermediate crude is 0.7% higher at $56.00 per barrel. Copper strengthened nearly 1%, and gold is 0.2% firmer at $1,271.60 per ounce.

German industrial orders unexpectedly rose in September, climbing 1.0% on top of August’s gain of 3.6%. Orders also recorded a 3.6% increase in 3Q from 2Q and were a substantial 9.5% above their September 2016 level. Domestic orders for capital goods, a leading indicator of business investment, went up 5.2% on month, and total export orders were 1.7% greater than in August.

Swiss CPI inflation held at 0.7% in October, the same on-year pace as in September and August.

Euro area producer prices increased 0.6% on month in September, which was more than analysts had forecast. Energy prices leaped 1.5%, while all other producer prices collectively edged up just 0.1% from August. The PPI was 2.9% higher than a year earlier.

British new car sales posted a greater on-year drop in October (12.2%) than those of 6.4% in August and 9.3% in September.

In the year between September 2016 and September 2017, retail sales and industrial production in the Czech Republic rose by 7.4% and 7.0%. Irish industrial output fell 3.2% in the same span.

Real GDP in Indonesia expanded 5.1% on year in the third quarter, up from a 4-quarter rise of 5.0% in the second quarter.

New York Fed President Dudley speaks publicly today.

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


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