Another Selling Wave Hits Stocks

February 13, 2018

Concern about the U.S. fiscal deficit appears to have been the catalyst for the latest drop in equities. A bill that passed the House by a vote of 240 to 186 and the Senate by 71 to 28 has been signed by President Trump, aborting a short-lived government shutdown, the second one of his administration. After previously passing a sweeping tax cut, spending is being raised on both defense and domestic programs, and the new law doesn’t resolve the DACA impasse either. Nor does the law ensure long-term continuity, as it only bridges the gap to March 23rd.

Many Asian stock markets had earlier posted higher closes of at least 0.8% including those of China, Hong Kong, India, Indonesia and Singapore. But a 0.9% drop in Japan’s Nikkei was a notable exception. U.S. futures point to a drop at the open in North America, and European markets have so far fallen today by 0.9% in Italy, 0.6% in Spain, 0.3% in Germany, and 0.2% in France and Switzerland.

The dollar has traded mostly lower, with drops of 0.9% versus the yen, 0.5% against the Swiss franc, 0.4% vis-a-vis the euro, 0.3% relative to sterling and 0.2% against the kiwi.

The ten-year German bund yield is two basis points softer, and a dip appears likely in its comparable U.S. Treasury yield.

Among commodities, copper has climbed more than 1.0%. Gold is 0.3% firmer, but oil has slipped 0.3%.

British CPI inflation stayed at 3.0% last month instead of dipping under that threshold as forecast. Core CPI accelerated 0.2 percentage points to 2.7%, but producer output and input price inflation fell to respective 14- and 18-month lows of 2.8% and 4.7%. The DCLG house price inflation rate rose 0.4% on month and accelerated 0.2 percentage points to 5.2% on year in December.

Switzerland’s combined producer price and import price index retained a 1.8% on-year increase in January. Analysts thought it would decline somewhat.

Japanese private domestic corporate goods price inflation, analogous to a PPI, went up by an as-expected 0.3% on month and 2.7% on year during January. The 12-month increase was down from 3.0% in December and 3.6% in the year to November. On-year growth in export prices have fallen to 1.8% in January from 9.7% in October, while import prices recorded a 4.9% on-year rise in January versus 15.4% in October.

In the year to January, South Korean import and export prices respectively dropped by 2.4% and 3.5%.

On-year growth in Japanese machine tool orders remained the high 40% range in January with a jump of 48.8%.

National Australia Bank’s monthly measures of Aussie business confidence and business conditions both improved last month, the former by two points to a reading of 12 and the latter by six points to 19.

Norwegian consumer sentiment improved this quarter.

So has U.S. small business sentiment, which rebounded to a reading of 106.9 in January according to the NIFB measure after such dropped 2.6 points to 104.9 the month before.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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