Intensifying Global Move Out of Riskier Assets

October 23, 2018

Investors are getting squeamish for political and economic reasons. 

  • Turkish President Erdogan again asserted that the Saudi killing of Khashoggi was premeditated. U.S. opinion polls suggest that with just 2 weeks left before the mid-term election, the pendulum is swinging back toward the Republicans, suggesting Trump may continue to control all branches of government. The migrant caravan is playing a similar role to former FBI Director Comey’s October reopening of the investigation into Hillary Clinton’s email.
  • U.S.-Chinese trade tensions are simply not going away. The Trump Administration is considering further tax cuts even as the Federal deficit rockets upward. Concern is rising over the slowing speed of global growth and a lack of policy weapons to combat the next recession.

Share prices in the Pacific Rim fell today by 2.7% in Japan, 2.9% in Hong Kong, 2.3% in China, 2.6% in South Korea, 2.0% in Taiwan, 1.5% in Singapore, 1.6% in New Zealand, 1.1% in Australia, 0.7% in Indonesia, and 1.0% in India. Stock markets in Europe so far show losses of 1.6% in Germany, 1.2% in Greece, 1.1% in France, 0.6% in Spain, 0.5% in the U.K., and 0.3% in Italy.

Ten-year sovereign debt yields are down six basis points in Spain, five bps in the U.S., 3 bps in the U.K., 2 bps in Germany, France and Italy and a basis point in Japan.

Among commodities, Comex gold strengthened 1.0% to $1,237.30 per ounce. WTI oil has fallen 1.6% to $68.27 per barrel, and copper is 0.9% cheaper.

The dollar, by contrast, has been rather steady today. Aside from a 0.5% drop against the yen, the greenback is down 0.1% relative to the Swiss franc, yuan, peso and sterling, unchanged versus the euro and kiwi, and up 0.2% vis-a-vis the Aussie dollar and 0.1% against the loonie.

Bank Indonesia as expected did not raise its 5.75% benchmark 7-day reverse repo any further. Such had previously been hiked by a total of 150 basis points between mid-May and late September. The 5.0% overnight deposit facility rate 6.5% lending facility rate were likewise left unchanged. A released statement¬†asserts that the “decision is consistent with ongoing efforts to reduce the current account deficit within a manageable threshold, while maintaining the attractiveness of domestic financial markets, thereby bolstering external resilience in Indonesia against a backdrop of persistently high global uncertainty.” Officials go on to note that the rupiah has fallen 10.65% so far in 2018 but is not outpacing other emerging market currencies in its decline. Inflation slipped last month, economic growth in 3Q was slower than expected globally and in Indonesia, and Indonesia’s external resilience appears to be strengthening.

German producer price inflation edged up 0.1 percentage point in September to 3.2%, a 12-month high. Energy prices advanced 8.5%, and all other producer prices collectively rose only 1.6%.

Consumer confidence in Turkey fell to 57.3 in October, lowest since end-2008, after readings of 59.3 in September, 68.3 in August and 73.1 in July. Consumer confidence in Denmark also deteriorated with a score this month of 5.1, weakest since February 2017, after 6.9 in September, 7.8 in August, 9.7 in July, and 10.6 in June.

Japanese machine tool orders in September were just 2.9% higher than a year earlier, down from on-year growth of 5.1% in August, 13.1% in July and 48.8% way back in January.

Japanese supermarket and department store sales in September were respectively 1.9% higher and 3.0% lower than a year earlier.

The British October monthly industrial trends survey revealed a 2-year low in the component for orders of minus 6. That’s down from -1 in September, +7 in August and +13 in June. Export demand swung from +5 in September to -4 in October.

Spain recorded trade deficits of EUR 3.06 billion in August and EUR 20.83 billion over the first eight months of 2018. Import growth has outpaced export expansion.

CPI inflation in Singapore in September of 0.7% matched August’s 15-month high of 0.7%.

CPI inflation in Hong Kong accelerated from 2.3% in August to a 7-month high of 2.7% in September.

South Africa’s index of leading economic indicators dropped 0.9% in August.

Still ahead: The Richmond Fed monthly manufacturing index and Euroland’s index of leading economic indicators will be released later today.

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


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