Leaping Equities

January 4, 2018

The spirited surge in equities was extended in overnight trading, with Japan’s first session of the new year posting a 741-point or 3.3% rise in the Nikkei-225 index. Share prices also climbed 1.1% in Singapore, 0.8% in Hong Kong, 0.7% in Indonesia and 0.5% in India and China. With the baton passing to Europe, stocks there so far are up 2.1% in Italy, 1.5% in Spain, 1.3% in France, 1.1% in Germany but just 0.1% in Great Britain.

Factors behind this rally include

  • Expectations of greater U.S. corporate earnings due to greatly lowered business taxes.
  • Proof in reported December purchasing manager surveys of brightening business prospects all over the world.
  • President Trump’s opportunity to reconfigure Fed leadership into a more hawkish predisposition as he fills a slew of openings on the Board.
  • Continuing subdued inflation and financial market deregulation.

Markets are meanwhile disregarding the deepening feud between President Trump and his former chief adviser Steve Bannon. Also getting ignored areĀ  various unresolved and still-festering geopolitical strains and the proliferation of natural disasters. The U.S. Atlantic seaboard is experiencing a monster storm of wind, snow, and potential flooding, and the San Francisco Bay area was rocked by a 4.4 point earthquake.

A mixed dollar finds the U.S. currency up 0.3% against the Swiss franc and sterling, 0.2% higher versus the yen, and up 0.1% reliative to the loonie and yuan but down 0.2% versus the kiwi and 0.1% against the euro and Aussie dollar. Bigger dollar losses such as 1.1% against the Mexican peso are being seen relative to emerging market monies.

Gold slipped 0.4% to $1,313.90 per ounce, while West Texas Intermediate crude oil ticked up closer to $62 per barrel.

10-year sovereign debt yields firmed a basis point in Germany, Japan and the United States and by 2 bps in the U.K..

ADP’s 250K estimate of U.S. private sector jobs growth last month was much greater than analyst expectations of a 190K advance. Jobless insurance claims last week ticked up 3K to 250K, but the 4-week average of 241.75K reflects a continuing low layoff rate.

Purchasing manager surveys released today showed:

  • Faster eurozone growth was experienced in both service sector activity and overall GDP. The services PMI in December climbed 0.4 points higher to an 80-month high of 56.6, and the composite reading, an 82-month high of 58.1, suggests Euroland GDP grew about 0.8% in 4Q17 and ended the period with rising momentum. The composite PMI scores of Germany, Ireland, Italy, and Spain were at 80-, 21-, 8- and 3-month highs, and France’s composite PMI was high at 59.6, albeit down from a 78-month high of 60.3 reached in November.
  • Japan’s manufacturing purchasing managers index, released later than usual because of that country’s long holiday, rose 0.4 points to a 46-month high of 54.0. Hong Kong’s private PMI (51.5) also hit a 46-month high.
  • China’s services PMI unexpectedly jumped to a 40-month high of 53.9 versus a reading of 51.9 in November. The Chinese composite PMI of 53.0 was 1.4 points better than in November.
  • Singapore’s private PMI reading edged 0.1 percentage point higher to 52.9, an 8-year high.
  • Australia’s AIG PMI for services rose for a second straight month, hitting a 3-month high of 52.0, and the composite PMI of 55.5 reflected the strongest improvement of business conditions since July.
  • Britain’s service-sector PMI rose 0.4 ppts to a 2-month high of 54.2, and the composite PMI was unchanged at 54.7, suggesting that the U.K. post-Brexit economy continues to exhibit more resilience than feared.
  • India’s composite PMI jumped 2.7 points to a 14-month peak of 53.0, as the services PMI rose back above the 50 line that separates improving from deteriorating business conditions.
  • In the Middle East, Egypt’s non-oil PMI, which had touched a 27-month high of 50.7 in November, fell back to a 3-month low of 48.3 in the final month of 2017. The Saudi Arabian non-oil PMI slid 0.2 ppts to a 2-month low of 57.3, but the U.A.E. non-oil PMI rose another 0.7 ppts to a near three-year high of 57.7. Lebanon’s private purchasing managers index dipped 0.1 ppt to 46.1, as production contracted at the fastest pace since October 2016.
  • Sweden’s service-sector purchasing managers index leaped to a heady 64.6 reading, highest in a year and up from 61.9 in November.
  • The Brazilian composite PMI, in contrast, fell to 48.8, reflecting the sharpest rate of deterioration since June despite a lessening contraction in the service sector.

Yesterday’s released minutes from the December meeting of the Federal Open Market Committee indicated that some members had reservations about tightening while inflation stays so subdued, but they represent a clear minority and a diminishing one.

Britain’s Nationwide house price index posted a 2.6% year-on-year advance in December, down from 4.5% at the ends of both 2016 and 2015.

A 6.3% jump in oil prices was responsible for a 1.4% monthly increase in the Canadian PPI in November. The oil component leaped 18.2% on year, but all other producer prices collectively went up just 0.4% between November 2016 and November 2017. The overall PPI posted a 2.7% on-year advance.

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

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