Difficult Day in the U.K.

September 24, 2019

The Brexit crisis deepened today as the highest British court ruled unanimously that Prime Minister Johnson’s suspension of parliament was illegal. Just 37 days remain before the current October 31 deadline by which a Brexit deal must be worked out by the Johnson’s government, which at the moment appears highly improbable.

On the data front, the orders index in the CBI monthly survey of British industrial trends relapsed 15 index points in September to a negative 28 reading. That’s not far from July’s 9-year low of -34 and far from February’s 2019 high of +6. British public sector net borrowing in the first five months of the present fiscal year equaled GBP 31.2 billion versus GBP 24.4 billion a year earlier. Outstanding debt now equals 80.9% of GDP.

In market action, the pound rose 0.3% against the dollar overnight. The 10-year British gilt yield edged a basis point higher, while the FT100 equity index is 0.1% lower.

Against other currencies overnight, the dollar fell 0.3% versus the Australian currency, 0.2% relative to the Swiss franc, peso and yuan, and 0.1% vis-a-vis the kiwi. The dollar rose 0.2% against the yen and is unchanged versus the loonie and euro.

Asian stock markets rose 0.5% in South Korea, 0.4% in Singapore, 0.3% in China, 0.2% in Hong Kong and 0.1% in Japan. Continental European bourses are up 0.4% in Spain, 0.3% in France, 0.2% in Italy, and 0.1% in Germany and Switzerland.

The Japanese 10-year JGB yield fell 3 basis points, and the U.S. 10-year Treasury futures yield is two basis points softer.

Among commodity prices, WTI oil and Comex gold are 0.9% and 0.3% below Monday closing levels.

Bank of Japan Governor Kuroda defended the current monetary policy stance, asserting that medium- and longer-term inflation expectations are skewed to the upside and that a positive output gap in Japan is consistent with a gradual eventual rise of inflation toward the 2% target. He also noted that in preparation for next month’s Board meeting, a regularly scheduled thorough review of factors affecting the outlooks for growth and inflation will be undertaken.

Hungary’s central bank base rate was left steady at 0.90% as had been expected after the latest monetary policy review in that country. Magyar Nemzeti Bank’s interest rate has been at that level since the final reduction in a series of cut was made in May 2016.

The German IFO Institute’s monthly business climate index bounced from an 81-month low of 94.3 to a 2-month high in September of 94.6. While perceived current economic conditions also rebounded to a 2-month high, future expectations deteriorated further this month to a 123-month low of 90.8. Such had printed at 10o.4 in September of 2018. Deterioration was concentrated in manufacturing and trade, while the services and construction sectors saw some improvement compared to August.

Japan’s composite purchasing managers index slipped 0.4 points to a 2-month low in September of 51.5 due to a 39-month low in manufacturing to a reading of 48.9. Japan’s services PMI this month slipped 0.5 points from August’s 22-month high to post a reading of 52.8 in this preliminary release.

Japan’s index of leading economic indicators for July was revised up by 0.1 of a point to a 2-month high of 93.7. The indices of coincident and lagging economic indicators were at 2- and 4-month highs.

Czech consumer confidence slumped to a 38-month low in September, while business confidence there eased back to a 2-month low.

South Korean producer price inflation was negative for a second straight month in August. With an on-year drop of 0.6%, such showed the steepest 12-month decline in 35 months and a swing from a 2.5% on-year increase last September.

Polish unemployment of 5.2% in August matched July’s level but compared favorably with 6.1% in the first two months of 2019.

Finnish unemployment of 6.1% last month was down from 6.8% a year earlier. Finnish PPI inflation was negative for a third consecutive month in August at -1.0%. That’s down from 5.9% in September 2018.

The U.S. Case-Shiller and FHFA house price indices get reported later this morning as does the KC Fed monthly manufacturing index and Conference Board consumer confidence index.

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

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