Today’s Menu: Trade Data and Talks, Central Bank Meetings, and a Continuing U.S. Government Shutdown
January 9, 2019
Equity markets continued to rally after U.S.-Sino lower-level trade talks extended to a third day. Although no details about possible progress were revealed, investors took the unexpected third day of negotiations as a good sign that the dispute can be settled by March and avert a re-escalation of mutual big tariffs by the two countries that will otherwise resume then. Share prices rose 2.2% in Hong Kong, 2.0% in South Korea, 2.1% in Japan, 1.8% in Taiwan, 1.0% in Australia, and are up 1.4% in Germany, France and Italy.
Germany headed a list of several countries that reported trade data. The seasonally adjusted German trade surplus rose 1.1 billion euros to EUR 19.0 billion in November and was also above the third-quarter monthly average of EUR 17.4 billion. But exports fell 0.4% on month and were unchanged from their year-earlier level. The year-to-November German current account surplus of EUR 228 billion was little changed from EUR 232.8 billion a year earlier.
Trade figures were also released today for Denmark, Austria, Hungary, Romania, Portugal, Cyprus, the Czech Republic and Greece. The U.S. trade deficit would have been reported yeserday by the Bureau of Economic Analysis, but that release is one of many delayed indefinitely by the U.S. federal shutdown.
Central bank authorities in Romania and Poland left their key interest rates unchanged after monetary policy reviews. The National Bank of Romania’s monetary policy rate has been 2.5% and flanked by a 1.5% deposit rate and a 3.5% Lombard rate since a pair of 25-basis point hikes in January and May of 2018. Romanian inflation recently slowed on some base effects and is back within target. At the National Bank of Poland, the reference rate remains at 1.5% and flanked by a 0.5% overnight deposit rate and a 2.5% Lombard rate. Those have been the central bank interest rates since a 50-basis point cut in March 2015 and, before that, a series of nine reductions between November 2012 and September 2014 totaling 275 basis points.
The Bank of Canada’s Governing Council is also meeting today and not expected to raise its 1.75% overnight interest rate target. Canadian growth and inflation appear to have softened. Aside from the usual rate announcement, a scheduled quarterly Monetary Policy Update will be published to explain how bank officials now view the economic outlook. A standard passage in recent rate announcements regarding forward guidance may get deleted this month. Such previously read, “Weighing all of these developments, Governing Council continues to judge that the policy interest rate will need to rise into a neutral range to achieve the inflation target. The appropriate pace of rate increases will depend on a number of factors. These include the effect of higher interest rates on consumption and housing, and global trade policy developments.” Some investors now think the rate could conceivably get cut later this year.
President Trump’s brief prime time address last night regarding his border wall project and the rebuttal by House Speaker Pelosi and Senate Minority Leader Schumer do not appear to have broken the dynamic behind the 19-day federal government shutdown. Opinion polls suggest that significantly more voters are sympathetic to the Democrats’ position than Trump’s claim that a border crisis is sufficiently severe to justify a shutdown of the government.
Meantime, the dollar isn’t moving much at all against major currencies like the euro, yen, Swiss franc, sterling, or Canadian dollar, but it fell overnight by 0.8% against the kiwi, 0.7% relative to the peso, 0.4% vis-a-vis the yuan, and 0.3% versus the Australian dollar.
Ten-year German bund, Japanese JGB and U.S. Treasury yields have risen today by 6, 2, and 1 basis points.
The price of WTI oil is back above $50, with a 2.8% rise overnight to $51.18 per barrel. Gold is steady.
Euroland’s jobless rate dipped 0.1 percentage point to 7.9% in November, which compares with 8.7% a year earlier.
Swiss CPI inflation eased to a 10-month low in December of 0.7% from 0.9% a month earlier. Core inflation stood even lower at 0.3%.
French consumer confidence weakened more sharply than forecast amid worker protests in December, printing at a 49-month low of 87 versus readings of 91 in November and 105 at the start of 2018.
Spanish business sentiment fell to a 3-month low in December of -2.7 from a zero reading in November and a 2018 high score of +3.3 last April.
The ABSA-compiled South African manufacturing purchasing managers index, which had been below the 50 neutral level since February, rose 1.2 index points to 50.7 in December, which is a 21-month high.
AIG’s Australian service sector purchasing managers index dropped 3.0 points to 52.1 in December.
Average cash earnings in Japan posted their largest year-on-year increase, 2.0%, in November since June. Real cash earnings were 1.1% greater than a year earlier.
Australian building approvals slumped another 9.1% in November to be 18.1% lower than a year earlier.
Reported unemployment in November stood at 10.5% in Italy, 3.8% in South Korea, and 3.1% in the Czech Republic.
Canadian housing starts slipped slightly less than forecast to a 213.4K annual rate in December from 224.3K in November and a 2018 high of 247K last June.
U.S. mortgage applications rebounded sharply last week when the 30-year fixed rate mortgage cost fell 10 basis points to 4.74%.
Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Euroland unemployment, German current account, Sino-U.S. trade talks, Trump prime time speech