Trump Fighting a Two-Front War Against Fed and Over His Stance on Saudi Arabia

October 18, 2018

Minutes from the FOMC September meeting minutes at which monetary officials again raised interest rates reveal confidence in continuing growth, a view shared by some that the fed funds target is likely to spend a while above the perceived long-run level, and a considerable time allotted to discussion of the ramifications of U.S.-Sino trade tensions. President Trump, as if anticipating this hawkish tone, has ramped up criticism of the Fed’s gradual tightening in the face of continuing low inflation.

Trump also has dug in deeper against the vast weight of other world opinion that Saudi Arabia’s government authorized and planned the presumed torture and murder of Khashoggi. Trump’s critics are tying the president’s support of the Saudis to his personal financial dealings with that country. All this is playing out less than three weeks before the mid-term U.S. election, with a lot of uncertainty over the outcome.

The dollar is narrowly mixed, with losses of 0.4% against the Australian dollar, 0.3% relative to the kiwi, and 0.1% vis-a-vis the euro, no change against sterling, and gains of 0.2% against the yuan to a 21-month high, 0.2% versus the yen and peso too, and 0.1% versus the yen and Swiss franc.

West Texas Intermediate crude oil fell below $70 per barrel and shows a current daily loss of 1.0% to $69.09 per barrel. Gold is steady.

After a summit of European Union leaders in Brussels, no progress was reported on talks with Britain to strike a post-Brexit deal. A previously planned target date in November to finalize a plan was scrapped, but officials managed to keep their language civil and not exacerbate internal political tensions in Great Britain. Prime Minister Theresa May indicated she may be open to extending the post-Brexit transition phase.

The Bank of Korea Monetary Policy Board kept its Base Rate at 1.50%, the level since a 25-basis point increase eleven months ago. A released statement downgraded projected economic growth slightly and, despite a half percentage point rise of CPI inflation last month, projects sub-target CPI inflation both this year and next. The statement observes external risks felt by many emerging markets in Asia.

As it is forecast that inflationary pressures on the demand side will not be high for the time being, and that the domestic economy will sustain a rate of growth that does not diverge significantly from its potential level, the Board will maintain its accommodative monetary policy stance. In this process it will judge whether it is necessary to adjust its accommodative monetary policy stance, while closely checking future economic growth and inflation trends. It will also carefully monitor conditions related to trade with major countries, any changes in the monetary policies of major countries, financial and economic conditions in emerging market economies, the trend of increase in household debt, and geopolitical risks.

Australian unemployment dropped 0.3 percentage points to a 6-1/2 year low of 5.0% in September, but the net 5.6K rise in employment was smaller than forecast. A separate report revealed declines in the NAB index of business confidence to a reading of +3 last quarter from +7 in 2Q18 and in business conditions to +13 from +15.

Japan reported a third consecutive seasonally adjusted customs trade deficit in September (JPY 239 billion after shortfalls of JPY 191 billion in August and JPY 107 billion in July). September’s unadjusted trade gap of JPY 140 billion was 79% smaller than a year earlier, reflecting a 1.2% on-year dip in exports but a 7.0% rise in imports. September marks the midpoint of the fiscal year, and the first fiscal-half trade surplus of JPY 222 billion was 88% smaller than a year earlier.

The volume of British retail sales slumped 0.8% in September, trimming the on-year advance to 3.0%. Core sales also declined 0.8% on month, more than reversing a 0.5% rise in August.

Despite touching a 5-month high in September, the Swiss trade surplus for the first nine months of 2018 (CHF 11.6 billion) was 37% narrower than a year earlier.

German wholesale price inflation, which hit a 16-month high of 3.8% in August, settled back to 3.5% last months. Mineral oil prices were 19.4% greater than a year earlier.

Icelandic harmonized CPI inflation slowed to 1.2% last month. Dutch unemployment dipped 0.2 percentage points to 3.7%, and Portuguese PPI inflation edged up to 4.7% from 4.6%.

Although higher than forecast, the Philly Fed manufacturing index slid 0.7 to a 2-month low of 22.2, which compares to a 2018 peak of 34.4 reached last May. The Conference Board will be releasing the U.S. index of leading economic indicators later this morning.

A monetary policy review is occurring today in Chile.

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

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