European Equities Helped by Softer Euro

October 24, 2018

European equities have partly recovered today in spite of disappointing Euroland, German and French preliminary purchasing manager survey findings for October. One support for European share prices may be the strengthening dollar, which is trading 0.6% higher against the euro and sterling as well as 0.3% up on the Swiss franc.

President Trump expressed some more regret in his choice of Jay Powell as Fed Chairman. These public complaints against his appointees are not intended to change their actions but rather to rally the president’s political base by demonstrating that he can be tough.

In the Pacific Rim earlier, stocks were more mixed, with markets closing up 0.4% in Japan, 0.3% in China and 0.6% in India but down 1.5% in Indonesia, 0.4% in New Zealand and South Korea, and 0.2% in Taiwan and Australia.

While ten-year sovereign debt yields in Germany and the U.K. are marking time at 0.41% and 1.46%, those in Italy, Spain and Portugal show daily declines of 4 basis points and those in the U.S. and Japan are two basis points lower.

WTI oil has firmed 0.5%, but the price of Comex gold is 0.3% softer.

The dollar has also firmed 0.2% relative to the yen and 0.1% vis-a-vis the kiwi, yuan and peso.

The Swedish Riksbank Executive Board announced results of this month’s policy review. Officials left their repo rate unchanged at negative 0.50%. It’s been at that level since a 15-basis point cut in February 2016, and its been at zero percent or lower for the past four years. However, officials preannounced that a 25-basis point rate hike is coming soon — most likely in either December or February — but stressed that the pace of rate normalization will be quite slow. Two board members wanted to hike the rate now but were overruled by others on the committee.¬† The Board observes that¬† “there are signs that inflationary pressures are rising and the conditions are good for inflation to remain close to the target of 2 per cent in the coming years.” That’s still moderate, and the released statement asserts that “it is also important that the krona exchange rate develops in a manner compatible with inflation remaining close to target. All in all, the assessment of the Executive Board is that monetary policy needs to proceed cautiously and be expansionary for a long period of time to come.”

Japan’s manufacturing purchasing managers index, according to a preliminary estimate that incorporates about 85% of all pertinent information, climbed 0.6 points to a 5-month high of 53.1.

Euroland’s composite PMI sank 1.4 points to a 25-month low of 52.7, which is over 1.0 point weaker than forecast, meaning a slower, but positive, pace of growth. The ECB Governing Council’s response to such is not clear, however, because the survey also identifies higher inflationary pressure. Business confidence is near a 4-year low, and both manufacturing and services were around 2-year lows. The data, all in all, suggests that GDP growth this quarter may only be 0.3%.

Euroland’s slowdown was most pronounced in Germany, whose composite PMI and manufacturing PMI dropped to 41- and 29-month lows of 52.7 and 52.3. Service sector conditions improved at their slowest pace in five months.

The French composite PMI score of 54.3 was above Germany’s and at a 2-month high, in spite of a 25-month low in the manufacturing component. The services PMI rose 0.8 points to a 4-month high of 55.6. In a separate report from INSEE, the French government’s statistical agency, manufacturing sentiment dropped in October to a reading of 104 from 107 in September and 110 in August. Sentiment in services and construction remained unchanged.

Euro area year-on-year M3 money growth slowed to 3.6% last quarter from 4.1% in 2Q. For September, M3 posted a 3.5% on-year increase, private credit grew 3.0%, and loans to firms and to households were respectively 4.3% and 3.1% greater than a year earlier.

The British Bankers Association’s monthly estimate of mortgage applications fell to a 6-month low in September.

Czech business and consumer sentiment each improved to 4-month highs in September.

Finnish PPI inflation slowed to a 4-month low of 5.9% in September.

Japan’s indices of leading, coincident, and lagging economic indicators increased to 2-, 2- and 3-month highs, according to the government’s revised figures for August.

South African CPI inflation remained unchanged in September at 4.9%.

The Bank of Canada is expected to raise its key interest rate target later today. U.S. new home sales,the FHFA house price index, and weekly U.S. oil inventories will be reported.

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



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