Persistent Volatility as 2018 Winds Down

December 28, 2018

U.S. equities whip-sawed wildly in Thursday’s session, closing high. The upward direction carried into early Friday, with markets gaining 0.9% in Taiwan, 0.8% in India, 1.0% in Australia, 0.6% in South Korean, 0.4% in China and Hong Kong but dipping 0.3% in Japan. Markets in Europe are up so far 2.4% in Switzerland and between 1.5% and 1.8% in Italy, the U.K., Germany and France. U.S. futures suggest a rise but could be influenced early by data releases for pending home sales, consumer confidence, the trade balance and manufacturing in the Chicago are.

The dollar today has lost 0.7% against the yen, 0.5% relative to the Australian dollar, 0.3% versus the euro and kiwi, 0.4% against sterling, and 0.1% versus the Canadian dollar.

Ten-year sovereign debt yields have slipped 3 basis pints in the U.K., 2 bps in Japan and Italy, and 1 basis point in Germany and the United States.

WTI oil rose 0.6%, while gold remained steadily above $1,280 per ounce.

Having tightened unexpectedly in mid-November, members of the Central Bank of Sri Lanka‘s Monetary Board at the final policy review of 2018 decided to hold its Standing Deposit Facility and Standing Lending Facility rates unchanged at 8.0% and 9.0%. They were raised last month by 75 and 50 basis points respectively to support the floundering rupee and to prevent such from fueling higher inflation. In a released statement, officials noted a favorable near-term inflation prognosis below 5% and projected 4-6% inflation after 2019. Growth is below Sri Lanka’s estimated potential GDP expansion trend, and oil prices have fallen quite significantly.

German regional consumer price inflation reports form North Rhine Westphalia and Hesse confirmed sharp decelerations in December amounting to 0.6 and 0.7 percentage points and suggest that national inflation will end 2018 once again below the 2.0% threshold. Based on about 85% of all pertinent information, German national consumer prices matched November’s 0.1% monthly uptick, causing on-year inflation to slide to 1.7% in December from 2.3% in November.

Similarly, Spanish CPI inflation dropped half a percentage point to 1.2% this month. So did Tokyo’s CPI, which printed at 0.3% in December versus 0.8% in November. In Singapore, producer price inflation plunged to a 7-month low of 5.1% in November from 12.7% in October and 12.0%+ as well in both August and September. Greek PPI inflation dived to a 7-month low of 2.9% in November from 7.7% in October, and 0.9 percentage points were lopped off Austria’s 12-month increase in producer prices to 2.5% in November. All these reports were influence by collapsing world energy costs.

Japanese labor statistics, motor vehicle output, industrial production and retail sales were reported today.

  • The jobless rate rose to 2.5% in November from 2.4% in October and 2.3% in September, but employment growth also advanced, reaching a robust 2.4% year-on-year advance, and the job offers-to-seekers ratio reversed half of an earlier September-to-October decline.
  • Motor vehicle output was 6.3% greater in October than a year earlier, reversing a 5.3% on-year drop recorded in September.
  • After climbing 2.9% in October, industrial production fell 1.1% in November, not quite as steeply as analysts had been predicting. Officials retained the same trend assessment as they had used a month ago: IP is picking up slowly.
  • Retail sales fell 1.0% on month and recorded a smaller 1.4% 12-month rate of increase in November, down from 3.6% in the year to October.

In the year to November, South Korean retail sales and industrial production recorded comparatively weak increases of 1.0% and 0.1%. Over the same twelve-month interval, retail sales and industrial production in Portugal rose 4.1% but fell 2.9%.

Spanish real GDP growth was confirmed at the same 0.6% quarter-on-quarter pace in 3Q as estimated earlier, but year-on-year growth got revised downward by 0.1 percentage point to a 15-quarter low of 2.4%. Meanwhile, Spain’s monthly current account surplus in October was at a 6-month low of EUR 294 million. Such had been EUR 1.87 billion in October 2017, and the ten-month surplus of EUR 3.7 billion was over 70% smaller than a year earlier.

Trade figures were reported in Sweden, Thailand and South Africa. Sweden unexpected surplus in November was NOK 4.9 billion in size compared to a tiny NOK 0.1 billion deficit a year earlier. Thailand recorded its largest deficit in November ($1.178 billion) since April, leaving a year-to-date surplus of of $1.37 billion, which is 10.5% less than a year earlier. South Africa experienced its first surplus in November since August. The ZAR 3.49 billion surplus last month followed a ZAR 4.29 billion deficit in October, trimming the year-to-date deficit to ZAR 4.16 billion.

Dutch producer confidence ticked 0.3 index points higher to a reading of 7.5 this month.

Turkish economic sentiment rose for a second straight time to a 4-month high in December.

South Korean manufacturing sentiment, in contrast, reversed the prior month’s 2 point rise.

U.K. mortgage approvals as estimated by the British Bankers Association scored their first year-on-year increase in 14 months during November.

The Swiss index of leading economic indicators dropped by a significant 2.8 index points to a reading of 96.3 in the final month of 2018, having recently crested at 102.3 in September.

Due to the government shutdown, the U.S. advance trade balance for November was not released at 08:30 EDT as scheduled. There is an unconfirmed rumor today that Trump and Fed Chairman Powell may soon meet.

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

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