Nervous Market Tone Continuing

October 2, 2019

Investors remain leery that policymakers are up to the task of containing the slowdown of global growth. Monetary stimulus has grown old and less effective, while fiscal support is largely missing in action. The trade war motors on even as evidence such as the September purchasing manager surveys show that nobody wins. British Prime Minister Johnson is playing a different game of chicken, reviving his threat to pull the U.K. out of the EU if the bloc doesn’t accept the terms of his final exit offer, which includes a slight concession on the Irish border that most find to be not credible.

Following yesterday’s big drop in U.S. share prices, equity markets in major European centers are down 1-2%. Share prices also fell 2.0% in South Korea, 1.5% in Australia, 1.4% in both Indonesia and Singapore but just 0.5% in Japan. U.S. futures suggest further weakness.

Ten-year sovereign debt yields in the U.K. are 3 and 2 basis points higher, but those in the U.S. and Japan dipped a basis point.

The dollar and yen remain firm. Japan’s currency edged 0.1% higher against the dollar, which in turn shows gains of 0.6% against the Swiss franc, 0.4% relative to sterling, 0.3% vis-a-vis the Australian dollar, 0.2% versus the loonie and 0.1% against the euro and peso.

China (continuing National Day celebration) and India (150th anniversary of Mahatma Gandhi’s birth) are observing holidays.

Officials at the Bank of Iceland engineered their fifth reduction since March of the seven-day term deposit rate, which was lowered by 25 basis points to 3.25%. Earlier cuts were done in August, June, May and March and totaled 125 basis points. In a released statement, the Monetary Policy Committee observes a drop in expected inflation and a rise of the krona since it met five weeks earlier in August. Policymakers anticipate a continuing slowdown of growth in an uncertain global environment and expect the path of inflation to be downward and at a somewhat steeper slope than imagined before.

The Monetary Policy Council at the National Bank of Poland decided to keep its interest rates including a 1.5% reference rate unchanged. The last change of the key rate was a 50-basis point reduction on March 4, 2015.

The index of Japanese consumer confidence hasn’t recorded a rise since November 2017 and posted a rather large further drop of 1.5 points to a 99-month low of 35.6 in September. That compares with a reading of 43.3 a year earlier. On-year growth in Japan’s monetary base, over which the Bank of Japan exerts its most direct control, slowed to 3.2% in the third quarter from 3.6% in 2Q, 4.4% in 1Q, 7.3% in 2018 and 17.0% in 2017.

Britain’s construction purchasing managers index fell 1.7 points to a 3-month low of 43.3 in September. Shop prices in the U.K. recorded an on-year decline of 0.6% in September after 12-month drops of 0.4% in August and 0.1% in both June and July. Back in February, shop prices were 0.9% higher than a year earlier.

Swiss consumer prices unexpectedly dipped 0.1% in September after being flat on month in August, and this resulted in a 33-month low of on-year CPI inflation of just 0.1%. Inflation in September 2018 was 1.0%. Core inflation remained at 0.4% last month.

ECB President Draghi, whose 8-year term ends in a month, again urged EU governments and especially Germany to open the fiscal spigots so that investment spending might quicken and raise productivity. Whether this happens or not, Draghi assured his audience that monetary stimulus will continue.

In Thailand, CPI inflation slowed to an 8-month low of 0.32% in September, while PPI inflation became even more negative at -1.9%.

Romanian PPI inflation likewise slowed in August to a 25-month low of 3.25%.

Retail sales in protest-ridden Hong Kong were 25.3% lower in August than a year earlier, which is the biggest on-year drop since at least October 2005.

The monthly estimate by ADP of private sector jobs growth in the United States last month was 135k, which is slightly below street estimates and well down from August. The jobs component of yesterday’s ISM purchasing managers survey printed at 46.3, down 1.1 points from the month before.

The New York regional PMI gets released later today, and Harker and Williams of the Fed will be speaking publicly.

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

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