U.S. Stocks Under Renewed Selling Pressure

December 7, 2018

The late Thursday rebound in U.S. share prices proved short-lived: the Dow, S&P and Nasdaq at this writing show losses today of 0.9%, 0.8%, and 1.1% despite an equity-strengthening performance earlier in Europe and Asia.

A successful conclusion to U.S.-Sino trade talks looks to be in peril. Also, the monthly U.S. labor force report revealed a smaller-than-forecast 155K rise in jobs last month, a 12K downward revision to jobs growth in September-October, and an upturn in underemployment even as the jobless rate remained at 3.7% for a third straight month. Weekly hours worked ticked lower, but on-year average hourly earnings had a “3”-handled for a second month in a row. In short, nothing here will deter another Fed rate hike, but the data do suggest some cool-down in U.S. growth.

The dollar is mixed, with declines of 1.6% relative to the peso, 0.7% versus the Canadian dollar and 0.1% vis-a-vis the Swiss franc but upturns of 0.6% against the yuan, 0.5% versus sterling, 0.2% against the New Zealand and Australian dollars, and 0.1% versus the yen.

Oil jumped 4.4% today, and gold firmed 0.6%.

Ten-year British and French sovereign debt yields climbed 3 basis points today, and the 10-year German bund yield is 2 bps higher. But the U.S. Treasury and Japanese JGB yields are unchanged.

EUR/USD is unchanged after the release of revised Ezone GDP, employment, and labor costs.

  • A 0.2% 3Q-over-2Q increase in real GDP was confirmed, but the on-year growth rate was revised down to 1.6%, which follows 2.2% in 2Q, 2.4% in 1Q and 2.7% in the final quarter of 2017.
  • Final domestic demand accounted for only 0.1 percentage point (ppt) of GDP growth and was countered by a 0.2 ppt drag from net foreign demand last quarter. If not for a 0.3 ppt boost from a faster inventory build-up (no doubt unplanned), Euroland’s economy would have contracted last quarter.
  • Real GDP did  in fact contract last quarter in Germany (-0.2%) and Italy (-0.1%), and their respective on-year growth rates were just 1.2% and 0.7%.
  • Euro area labor cost inflation accelerated to 2.7% in 3Q from 2.0% in 2Q.
  • Employment growth in the euro area of 0.2% quarterly was just half as much as occurred in each of the first two quarters of 2018. On-year growth in jobs of 1.3% was down from 1.5% in 2Q and 1.6% in the final quarter of 2017.

German industrial production has traced a weak month-to-month sequence  of minus 0.7% in June, -1.3% in July, +0.1% in August, +0.1% in September, and minus 0.5% in October.

France, Euroland’s second largest economy, is now clearly outperforming Germany. French GDP rose 0.4% last quarter, and industrial production in October went up 1.2%. France also posted its smallest current account deficit in nine  months during October. It was merely EUR 0.7 billion.

Italian retail sales only bounced up 0.1% in October following a 0.8% slide in September.

Danish and Norwegian industrial production in October was 6.8% and 4.5% greater than a year earlier.

Overnight Japanese data showed a $5.39 billion increase in international reserves, a 1.5% on-year advance in labor cash earnings (-0.1% after adjusting for inflation), a 0.9% rise in the  index of leading economic indicators, a retained “weakening” trend designation for the index of coincident economic indicators, and a 0.3% October-over-October drop in real household spending. Such was the second straight PCE drop and the fourth on-year decline  in the last six reported months.

Australia’s construction purchasing managers index dropped 1.9 points to 44.5  in November, the weakest reading this year.

Britain’s Halifax house price index in September-November was just 0.3% above the year-earlier level. That’s near to a 6-year low, which is understandable given the high uncertainty of Brexit. Parliament votes next Tuesday on whether to accept Prime Minister’s Brexit deal.

Icelandic GDP was flat on quarter, and on-year growth decelerated there to 2.6% from 6.7% in the second quarter.

Canada’s jobless rate fell 0.2 percentage points to 5.6% in November. This good news was amplified by a 94.1K increase in jobs last month, most of which were private full-time positions. Hourly wages were 1.5% greater than a year earlier.

Consumer price inflation in Mexico slowed to a 5-month low in November of 4.72%. PPI inflation also was 4.7%. Brazilian CPI inflation fell to a 6-month low of 4.05%.

A $9 billion increase last month in Chinese FX reserves, the first rise in four months, had not been anticipated.

India’s current account deficit widened by half a percentage point of GDP last quarter 2.9% of GDP. Its dollar size was $19.1 billion, compared to $15.8 billion in the second quarter and $6.94 billion in the third quarter of 2017.

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


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