Equities Revive as Markets Look Ahead to FOMC and Kavanaugh Hearing

September 25, 2018

The FOMC is expected to raise its interest rate tomorrow. New forecasts will be released, and Powell presides over a press conference.

A third woman has surfaced, accusing Supreme Court nominee Kavanaugh of sexual misconduct. The Senate Judiciary Committee hearing is set for Thursday.

The third event of this upcoming three-ring circus will be the U.N. Security Council meeting on Wednesday. As the meeting’s chair, President Trump plans to focus on Iran and world terrorism.

Equities rebounded in Asia by 0.9% in India, 0.5% in Singapore and 0.3% in Japan. Bigger upward moves have occurred so far of 1.2% in Italy, 1.0% in Greece, 0.5% in the U.K., and 0.3% in Germany.

Ten-year sovereign debt yield increases in The Netherlands of 7 basis points and France, Germany and the U.K. of 2 basis points today actually exceed the 1-bp rise of U.S. Treasuries.

WTI oil is up another 0.5%, and gold edged 0.1% higher.

No significant moves in the dollar to report. It is up 0.3% against the yuan but down that amount relative to sterling. The greenback has fallen 0.2% versus the euro and 0.1% vis-a-vis the kiwi but risen 0.1% against the peso, loonie, and Swiss franc. The Aussie dollar and yen are flat on balance.

Minutes from the Bank of Japan’s end-July Board meeting document the mixed feelings of policymakers, with some increasingly worried about damage to financial markets of multi-year extreme stimulus but others nervous that the decision to increase the flexibility of the target on 10-year bond yields might cause such to rise unduly. Governor Kuroda tried to balance these sentiments in a speech today that said zero interest rates won’t be kept forever but that the policy remains appropriate for now and that government officials share the preference not to abandon the stance before the 2% inflation target is at hand.

Germany’s six economic institutes released their autumnal collective forecast, lowering projected 2018 growth by a half percentage point to 1.7%. Projected 2019 growth was also lowered but by just 0.1 percentage point to 1.9%, and growth of 1.8% is penciled in for 2020.

Markets in South Korea and Hong Kong stayed closed.

Japanese corporate service price inflation ticked up 0.2 percentage points to 1.3% in August, most in a few years. The CSP inflation rate had averaged 0.8% last year and 0.3% in 2016.

German wholesale price inflation accelerated 0.2 percentage points as well in August to 3.8%, with solid fuel and mineral oil products posting a 17.7% 12-month rate of increase.

Swedish PPI inflation of 9.3% in August was up from 8.4% in July and the most since September 1995.

Spanish PPI inflation advanced 0.6 percentage points to 5.2%, a 15-month high.

Japan’s leading, coincident, and lagging indices of economic indicators each were revised downward for July. The LEI was at a 20-month low. The lagging index hit a 9-month low, and the CEI was at a 4-month low that month. In a separate release, Japanese supermarket sales, which had spiked to a 1.5% on-year increase in July fell back to just a 0.1% 12-month rate of rise in August.

Danish retail sales growth from a year earlier of 3.5% in August was the most since May.

Overall French business sentiment rose to a 2-month high in September, according to the government statistical agency, INSEE. This rebound came despite lower sentiment in manufacturing and retail but reflected improved moods in services.

Austrian GDP recorded quarter-on-quarter growth of 0.6% in 2Q, the least in a year, which caused the on-year pace to drop a full percentage point to 2.7%. Austrian on-year growth in industrial production, 4.8% in July, was the smallest since April.

Two measures of U.S. house prices just released were marginally lower than forecast. The FHFA measure rose just 0.2% in July but 6.5% between 2Q17 and 2Q18. The Case Shiller index of home prices in 20 metro areas recorded a 0.3% monthly increase, but its on-year pace slid to 5.9% from 6.3%.

Still to come: U.S. consumer confidence and the Richmond Fed manufacturing index.

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


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