Greater Optimism on A U.S. Border Security Deal

February 12, 2019

The U.S. Congress reached an accord “in principle” on a border security deal. Details still need to be fleshed out, and it’s not clear if President Trump is prepared to sign such. But the development inspired enough hope to lift U.S. share prices about 1% in early Tuesday trading.

Stocks earlier rose 2.6% in Japan, whose market was closed for holiday on Monday. Other Asian markets climbed 0.9% in Taiwan, 0.7% in China and India, 0.5% in South Korea and 0.3% in Hong Kong. So far in Continental Europe, the German Dax, Paris Cac, and Spain’s Ibex are up 1.2%, 1.1% and 0.8%.

But the British Ftse has not participated in the rally. Prime Minister Theresa May requested more time for her to negotiate modifications in the Irish backstop clause, evoking a claim from the Labour opposition that she’s stalling for time to force an eventual choice between no Brexit deal and the overwhelmingly rejected one that she presented last month.

One should not look at the U.S. and British political dramas as totally separate matters whose outcomes are unrelated. The core issue in each case is a nationalist hostility to immigration. The Brexit referendum in June 2016 foreshadowed the election of Donald Trump 4-1/2 months later. Britain is America’s canary in the cave. If the U.S. problem isn’t resolved, the fractures in America’s political fabric are likely to tear further as well.

Sovereign debt yields have firmed today, with 10-year bonds up 3 basis points in the U.S., 2 bps in Germany, and a basis point each in Japan and Great Britain.

The dollar is mixed, dipping 0.4% against the Aussie dollar, 0.3% versus the loonie, yuan and peso, and 0.2% vis-a-vis sterling but rising 0.3% against the Swiss franc and 0.1% relative to the yen. Fittingly, EUR/USD is unchanged on balance.

West Texas Intermediate oil rebounded 1.8%, but gold is flat.

Most of today’s released economic data accentuate the softening tone of global growth and inflation.

U.S. small business sentiment, measured by the NFIB index, sank 3.2 points in January to a 2-year low of 101.2. Deregulation, a hallmark of the Trump administration’s economic agenda, has been touted as a huge gift to small firms. The data suggest a troubled mindset instead.

The JOLTS data for December, documenting U.S. job openings, hirings, and separation trends, improved relative to the prior month and the year-earlier month.

Japan’s Tertiary index of service sector activity fell in December for a second straight month, resulting in a 12-month increase of only 0.4%, down from on-year increases of 1.3% in the whole fourth quarter and 1.0% in full-2018.

Japanese M2 money grew 2.4% on year in January, a shade less than the fourth quarter on-year increase of 2.5%. M2 expanded less sharply in 2018 (2.8%) than 2017 (4.0%).

Indian industrial production rebounded in December to a 2.4% on-year increase from a 17-month low of 0.3% in November. December’s increase was still less then the fiscal year-to-date rise of 4.6%. India’s fiscal year runs April to March. Separately, Indian CPI inflation slowed to a 9-month low of 2.05% in January. That’s down from 4.17% last July, i.e., six months earlier.

Factory output in South Africa ended 2018 just 0.1% above the December 2017 level, much weaker than had been forecast. South African unemployment last quarter stood at a lofty 27.1%, a tad less than 27.5% in 3Q18 but higher than 26.7% in the final quarter of 2017.

Portuguese CPI inflation last month of 0.5% was down from 1.6% last July and its lowest since 0.4% in April 2018.

Retail sales in Singapore posted an 11-month low 12-month change in December, with a drop from a year earlier of 6.0%.

Australian mortgage loans tumbled 6.1% in the final month of 2018. The National Australia Bank’s monthly measures of business confidence and business conditions respectively rose to 3- and 2-month highs in January.


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