Brexit Mess, An FOMC Announcement, and Some Weak Data Reports

January 30, 2019

Last night’s British parliamentary votes produced an ill-advised win for Prime Minister May, rejecting a no-deal option or a second referendum in favor of authorization for the prime minister to attempt a renegotiation of parts of her agreement with the rest of the EU. Those governments have repeatedly ruled out renegotiation, so a no-deal Brexit remains very much in play.

The Federal Open Market Committee has met yesterday and today and will release a statement at 14:00 EST (19:00 GMT). No policy change is anticipated, and no press conference is to follow. Chairman Powell at the December press conference express more confidence in U.S. economic trends than investors wanted to hear. It’s hoped that the statement will cool those jets and plant the possibility of perhaps no rate hikes in 2019 or perhaps only one move.

The following weak growth and price data were reported overnight:

  • Consumer confidence in Japan dropped 0.8 index points to a new 26-month low of 41.9 in January. This was the fourth straight month to see sentiment deteriorate.
  • French on-year GDP growth slid another 0.4 percentage points to 0.9% last quarter, which was but a third of the 2.8% growth posted in the prior year to the final quarter of 2017.
  • German CPI inflation slowed 0.3 percentage points to an 11-month low of 1.4% in January.
  • KOF reported a 1.1 index point drop in Switzerland’s index of leading economic indicators to 95.0 in January, marking the fourth straight decline and its lowest level since April 2015.
  • The ZEW index of investor expectations regarding the Swiss economic outlook more than reversed December’s 20.1-point rebound and fell to a new low for the move of minus 44.0.
  • Spanish business sentiment fell 1.3 points to a 5-month low of negative 4.1 in January.
  • Spanish retail sales recorded the biggest month-on-month drop in five months during December and ended 2018 just 0.8% above the December 2017 level.
  • Euroland’s economic sentiment index fell more than anticipated in January due to deteriorations in the retail, services and industrial sectors.
  • Euroland’s economic climate index fell to a two-year low this month.
  • German import price inflation was halved to 1.6% in December compared to 3.1% in November and 4.8% in October. Imported energy costs plunged 8.9% on month.
  • Consumer sentiment in Sweden dropped 4.1 index points to 92.0 in January, its lowest reading since the end of 2013.
  • Producer prices recorded December-over-November drops of 1.6% in Iceland and 0.7% in Austria.
  • Factory sector sentiment in Italy weakened further this month to 102.1 from readings of 103.4 in December, 104.1 in November, 104.6 in October and 105.4 in September.
  • Retail sales in Hong Kong were only 0.1% higher last month than in December 2017.
  • On-year Mexican GDP growth of 1.8% last quarter was down from 2.5% in 3Q18 and 2.6% in last year’s second quarter.
  • Australian CPI inflation eased to 1.8% last quarter from 1.9% in 3Q and 2.1% in 2Q. Core inflation also remained below 2.0% and target.
  • Although rising to a 67-month high, the 12-month increase in British shop prices was just 0.4% in January.
  • Money and private credit growth each slowed last month in South Africa.
  • Lower U.S. mortgage rates in December didn’t stop pending home sales from declining 2.2% to a 44-month low. Compared to December 2017, sales fell nearly 10%.

Other scheduled U.S. releases today like fourth-quarter GDP and and the advanced trade deficit estimate were delayed.

A bright spot was provided by Japanese retail sales, which in December rose by a greater-than-forecast 0.9% from November and 1.3% from a year earlier.

Two-month highs were posted in the euro area this month in construction sector sentiment and consumer confidence.

Italian consumer sentiment rebounded 0.8 points to a 2-month high in January, and Portuguese retail sales were 4.2% greater last month than a year earlier.

Malaysia’s trade surplus widened 22% last year.

In market action overnight, the dollar rose 0.4% against the Swiss franc, 0.2% against the euro, and 0.3% versus the yen, but fell by 0.5% vis-a-vis the Australian dollar, 0.4% against the loonie, 0.3% relative to the yuan, and 0.2% against sterling.

The DOW currently shows a 1.0% advance, but share prices earlier fell 0.7% in China, 0.9% in New Zealand, 0.5% in Japan, and 0.4% in Singapore. The British FTSE and Paris Cac are now up 1.5% and 0.6%, but the German Dax shows a 0.7% decline.

WTI oil strengthened, but the price of gold slid a little.

Ten-year sovereign debt yields today are a basis point firmer in the United States, unchanged in Japan, and a basis point lower in Germany.

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

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