Global Slowdown Concerns Remain in Play

January 10, 2019

FOMC minutes yesterday revealed less clarity about the future path of the fed funds target. Some committee members had been hesitant to endorse December’s rate hike, the ninth of this tightening cycle, although a consensus persists that a few more increase are probable in the future. Ultimately, policy will be reactive to the data, and in particular officials want proof that inflation is rising.

China reported a 6-month low of 1.9% in CPI inflation and a 27-month low of 0.9% in PPI inflation for December 2018.

Japan’s index of leading economic indicators slid 0.3% to a reading of 99.3 in November after back-to-back 99.6 scores in September-October, and officials for a third straight month labeled the trend “weakening” in the index of coincident economic indicators.

France’s 1.3% increase of industrial production in October has now been flanked by a drop of 1.3% in November and a 1.7% dive in September. November’s level was 2.1% weaker than a year earlier. Such had posted a 1.8% year-on-year advance as recently as July.

Non-oil middle eastern purchasing manager indices for the United Arab Emirates and Saudi Arabia dropped to 26- and 2-month lows in December, while Egypt’s PMI was below the 50 level for a fourth straight month. Sub-50 readings imply a contraction of activity versus the prior month.

British same-store sales were 0.7% lower in December than a year earlier, their third 12-month decline in the last four months.

Irish industrial production in November was 10.5% below its year earlier level. That’s the biggest on-year drop of 2018.

South Africa’s SACCI index of business sentiment fell by 0.9 index points to a 3-month low in December.

Danish consumer price inflation remained steady at a low 0.8% in December. Prices posted a month-on-month drop of 0.3% for a second straight time.

Despite remaining at the lowest level since July 2011, Greek unemployment in October was still lofty at 18.6%.

Likewise, Italian retail sales in November recorded their biggest monthly rise (0.7%) in six months, but the year-on-year advance remained lower than 2% at 1.6%.

During the first twenty days of December, Japan’s customs clearance trade deficit of JPY 626 billion was twice as wide as in the comparable period a year earlier, reflecting a 5% increase in imports but a 1.5% drop in exports.

The National Bank of Serbia left its key policy rate unchanged again at 3.0%. A pair of 25-basis point cuts were implemented last March-April. The Executive Board’s statement noted that inflation at 1.9% had only recently moved into the lower end of a 1.5-4.5% target range. Officials believe that policy caution is warranted because of a delicate international situation:

 Despite the decline recorded in the closing months of 2018, the global oil price remains an inflation factor that urges caution. Uncertainty in the international financial market also stems from protectionism in international trade and geopolitical risks, which could dampen investor sentiment.

Dollar movements overnight ranged from a 0.5% rise against sterling to a 0.5% drop versus China’s yuan. 0.1% dollar upticks occurred against the euro, yen, and kiwi.

It’s been a more difficult day for equities than the past few. Share prices are down 1.3% in Japan, 1.1% in Greece, 0.6% in France, 0.4% in China, and 0.2% in Germany.

Ten-year sovereign debt yields have slipped 2 basis points in Germany and a basis point each in the United States, Great Britain and Japan.

West Texas Intermediate crude oil settled back 0.7% to $52.02 per barrel. Gold is up 0.2% and trading just a little below $1,300 per ounce.

Japanese international reserves rose $12.7 billion last month but just $6.7 billion for all of 2018.

CPI inflation stayed at 3.5% in Norway last month, while PPI inflation was nearly halved to 7.8% from 14.9% the month before.

In U.S. political news, no new progress has been reported either in resolving the trade dispute with China or the border war standoff between President Trump and the Congress.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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