Share Prices Bounce Higher despite Geopolitical Tensions

November 26, 2018

U.S. equities rebounded over 1.0% in initial trading this Monday after a very poor performance last week. There were solid stock gains in Asia and Europe, too.

EU leaders agreed to a tentative Brexit deal over the weekend, but the pact needs to be approved by the British and European parliaments. That accomplishment remains very uncertain.

Russia has fired on Ukraine warships in the Black Sea, reviving a geopolitical hotspot. U.S. President Trump fanned another one by threatening to close the border with Mexico permanently and contemplating the use of lethal force in that effort.

10-year sovereign debt yields climbed 4 basis points in the U.S. and Great Britain, 3 bps in Germany and 2 bps in the Netherlands and France. By contrast, such yields have fallen 17 bps in Greece, 15 bps in Italy, 6 bps in Spain, and a basis point in Japan.

WTI oil, whose price had been taking a beating, jumped 3.1% to $51.98 per barrel. Gold is little changed. The value of crypto currencies continues to erode.

The dollar rose 0.5% against the yen and 0.4% versus the Mexican peso. The dollar has slipped 0.3% versus the kiwi, 0.2% relative to the Australian dollar and sterling, and 0.1% vis-a-vis the yuan and loonie. The euro is steady against the dollar.

The Bank of Israel‘s key interest rate was changed for the first time since a 15-basis point cut in February 2015. That reduction was reversed today, but officials characterize the new stance as still accommodative. The rate is only 0.25% and was 3.25% at the end of 2010. In justifying today’s 15-basis point rate hike, central bank officials observed that inflation has stabilized slightly above the target floor. Inflation expectations have also returned to target, and GDP is converging on its potential non-inflationary path.

Several ECB officials have made public comments. Mario Draghi conceded that economic data for the euro area have indicated slower activity but thinks some of that will prove temporary. He still expects the program of bond buying to end after next month. Praet opined that Italian government borrowing is on an unsustainable path, and Nowatny warned of the dangers of prolonged very low interest rates.

The German business climate index published monthly by the Munich IFO Institute dropped by 0.9 points to a 4-month low of 102.0 in November, prompting IFO officials to say the economy is cooling down. Current conditions and business expectations both weakened. The sub-indices for services and construction hit 4- and 3-month lows, while those for manufacturing and trade were at their weakest levels in over a year.

Japan’s September index of leading economic indicators was revised slightly higher to a 2-month high. The index of coincident economic indicators earned a “weakening trend” designation for the first time in two years.

Japan’s manufacturing purchasing managers index fell back 0.9 points to a 2-year low of 51.8 in November from a 6-month high in October.

Core retail sales in New Zealand flat-lined in the third quarter, cutting the on-year increase to a 5-year low of 2.7%.

The Chicago Fed’s National Activity Index rebounded to a 2-month high of 0.24 in October but was well down from August’s 0.53 level.

China’s indices and leading and coincident economic indicators respectively advanced in October by 1.2% and 0.9%. Both changes were more encouraging than the September results.

Industrial production in Singapore reversed almost half of September’s 4.7% monthly drop and was 4.3% greater than a year earlier.

Hong Kong posted a slightly bigger HKD 44.5 billion trade deficit in October than a year earlier and a deficit of HKD 466 billion over the first ten months of 2018.

The British Bankers Association observed a greater 39,697 of mortgage applications last month versus 38,712 in September.

Finnish PPI inflation edged down 0.1 percentage point to 5.8% in October.

In Denmark, retail sales in October were 2.5% greater than a year earlier.

Czech business confidence rose to a 124-month high in October, but consumer sentiment there fell to a 1-year low.

Two different measures of Brazilian consumer confidence reported over the past three days show such at the best levels in 47 and 58 months, respectively.

Mexican retail sales rose 1.0% on month and 4.1% on year in October.

At 17.6 in November, the Dallas Fed manufacturing index dropped 13.8 points from October and to its lowest level of 2018.

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

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