Market Worries about Trump

December 17, 2018

The DOW has fallen more than 1.0% to start the new week and to below 24,850, territory not seen since last March. President Trump is the common element in a slew of developments worrying investors.

  1. The threat of a presidential veto against any budget bill that doesn’t fund a border wall may shut down the federal government at the end of this week.
  2. Trade tensions between the United States and the rest of the world aren’t getting resolved, and global data already reveals a broad loss of growth momentum.
  3. Market-based betting now perceives more than an even chance Trump will be impeached in his first term. During the Watergate crisis, the DOW experienced a bear market with over a 40% drop.
  4. Just days before an FOMC meeting, Trump has against tweeted critical remarks about Federal Reserve policy, asserting that an interest rate hike would be ill-advised because of a strong dollar and low inflation.

The dollar ironically has fallen today, losing 0.7% against the peso, 0.6% relative to the Swiss franc, 0.4% vis-a-vis the euro and yen, 0.3% versus sterling, 0.2% relative to the yuan and 0.1% against the Australian and New Zealand dollars.

Equity trading overnight began on a upbeat note, with gains of 1.2% in Singapore, 1.0% in Australia, 0.9% in India, and 0.6% in Japan, but the mood soured in Europe where stock markets have dropped by 1.2% in Switzerland, 1.1% in Germany, 0.9% in France and Italy, and 0.8% in Great Britain.

The ten-year Treasury yield dipped another two basis points to 2.87%. That’s 37 basis points below the close on November 7.

The price of gold and oil rose today by 0.4% and 0.1%.

New Zealand’s Performance of Services index fell 2.1 index points to a 3-month low in November.

CPI inflation in the euro area dropped 0.3 percentage points to 1.9% in November. Core inflation slid 0.1 percentage point to 1.0%, and the 12-month rise  of the energy component settled back to 9.1% from 10.7% in the prior month.

Euroland’s seasonally adjusted trade surplus narrowed to EUR 12.5 billion in October from EUR 13.0 billion in September and EUR 16.1 billion in August. The unadjusted January-November surplus of EUR 156 billion was EUR 31 billion smaller that the surplus in the first 11 months of 2017.

Manufacturing activity in the New York area weakened to a 19-month low according to the December Empire State manufacturing index, whose reading of 10.9 was down from 23.3 in November.

Italy’s January-October trade deficit of EUR 32.27 billion reflects a nearly 15% contraction from a year earlier. In contrast, Norway’s trade surplus during the same period was 71% wider than a year earlier.

Turkish unemployment rose 0.3 percentage points to 11.4% in September, marking its fifth consecutive monthly increase. And on top of a 2.6% drop in September, Turkish industrial production fell by a further 1.9% on month in November to show a 12-month decrease of 5.7%.

Several economies reported price data. Austrian CPI inflation was 2.2% in November for the third time in four months. Czech PPI held steady at 3.9% in November but had been as low as zero percent last April. Cypriot CPI inflation slowed 0.3 percentage points to 1.6% last month, and Danish PPI inflation dropped by a full percentage point to 5.1%.  Polish core CPI inflation slipped to 0.7% from 0.9%.

Property prices in China rose 0.9% in November and posted their biggest 12-month increase (9.3%) in 16 months.

South Africa is observing its Day of Reconciliation holiday today.

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


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