Trade Talks Back in the Spotlight

September 27, 2019

A number of factors could have made Friday an ugly day in the marketplace — the U.S. and British political crises, weak European and U.S. data, and Japanese disinflation. But instead, the mood has been lifted by the announcement that U.S. and Chinese trade delegations will restart formal talks in Washington on October 10th.

Share prices in Europe are up 0.9% in the U.K., 0.8% in Germany and 0.6% in Spain, and a rise at the U.S. open is suggested by futures trading. In Asia, by contrast, equities fell 0.8% in Japan, 1.2% in South Korea, and 0.4% in India and Taiwan.

Ten-year sovereign debt yields are up 3 basis points in the U.S., 2 bps in Germany and a basis point in Japan.

The prices of gold and oil slumped 1.0% and 0.9% so far today.

Movements in the dollar have been only slight: a 0.3% rose against the yen, drops of 0.2% versus the loonie and of 0.1% vis-a-vis the euro, Swiss franc and Aussie dollar, and no net movement relative to sterling or the yuan.

U.S. personal income went up by a smaller-than-forecast 0.1% in August, and inflation according to the Fed-preferred PCE price deflator stayed at 1.4% for a fourth straight month. Separately, U.S. durable goods orders were reported to have risen only 0.2% in August and to have been 0.4% lower than a year earlier.

The EU Commission’s monthly measure of Euroland economic sentiment unexpectedly dropped 1.4 index points in September, printing at a near five-year low of 101.7. Measures of industrial sector sentiment, consumer confidence, retail and construction were lower than in August, and business confidence dropped to a 73-month low. Deterioration was especially pronounced in Spain, Germany and the Netherlands.

German import prices fell 0.6% last month and posted their greatest 12-month decline (2.7%) in 37 months.

Italian producer prices recorded a 1.4% year-on-year drop in August, most in 38 months.

France in September matched May’s 2-year low for CPI inflation of 0.9%, and French producer prices recorded a negative on-year change in producer prices (0.7%) for a second straight time in August. French consumer spending was unchanged in August from July’s level.

Italian economic sentiment fell another 0.3 index points in September due to a 0.8-point slide in manufacturing, but consumer confidence ticked up to a 2-month high. Italian consumer price inflation of 0.4% in August matched July’s 33-month low.

Spanish business confidence sank 6.6 index points to a 56-month low in September, but retail sales in August were 3.2% greater than their year-earlier level.

Unchanged Swedish retail sales last month trimmed their 12-month increase to 2.7% from 3.9% the month before.

Consumer confidence in New Zealand sank sharply to a 4-year low in September but rebounded that month to 9- and 2-month highs in Portugal and Finland.

The on-year decline of 6.1% in Singapore producer prices in August matched July’s result, which had been the biggest such drop since August 2016.

Irish retail sales were 2.1% greater in August than a year earlier.

British consumer confidence bounced from a 7-month low of -14 in August to a 2-month high of -12 in September.

Icelandic consumer price inflation of 3.0% in September was its lowest since March.

Tokyo consumer price inflation in September decelerated to 0.4% overall and 0.5% overall versus 1.1% and 0.9% three months earlier. Tokyo data are released one month earlier than the nationwide series and are thus a good leading indicator of the national trend.

China had an $88.2 billion current account surplus in the first half of 2019, suggesting it will post a surplus for the year as a whole. Chinese industrial profits recorded a 2.0% on-year drop in August after a 2.6% increase experienced in July. For January-August, the on-year decline was 1.7% as firms have been squeezed by the trade war.

Late yesterday came news that the Bank of Mexico had reduced its overnight interbank rate by 25 basis points for a second straight month.  The rate level now becomes 7.75%. These moves reverse 100 basis points of policy tightening in 2018, and more cuts seem likely soon. According to a released statement, five of seven policymakers voted for the reduction, while the other two favored a cut of 50 basis points. Inflation has nudged marginally below the 3% target, and weak economic growth is causing excess capacity to climb. Officials also were influenced by Mexican and global yield curve developments.

The U. Michigan/Reuters measure of U.S. consumer confidence gets released shortly.

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


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