Confusion on Many Fronts

October 15, 2019

Details of the Phase I trade deal that U.S. President Trump proclaimed last week remain vague, and it’s unclear even if the Chinese and U.S. negotiators reached any kind of common ground to commit to writing. The pendulum of investor expectations about where trade talks are heading continues to swing wildly by the day and hour.

If a framework of rules defining post-Brexit relations between the EU and U.K. is to accompany Britain’s departure on October 31, scant time remains to work such out. Leaders of the EU, the so-called EU Council, meet beginning on Thursday and would have to vote on the details of such a plan. The choices lacking a blueprint to be voted upon are a no-deal exit or another extension of the departure date.

The House Democrats’ impeachment investigation continues to be stymied by the White House’s full court press against cooperation in any way whatsoever. If President Trump prevails, it would mark an irreversible crossed line, which would seemingly be inconsistent with the dollar remaining the lynchpin of the international monetary system over the long run.

Investors have a lot to digest and insufficient facts to make well-educated presumptions because much hinges on politics rather than economics.

The dollar overnight fell back 0.6% against sterling and 0.3% relative to the peso, held steady on balance versus gold, the Swiss franc, yen and loonie and rose by 0.4% against the kiwi, 0.3% versus the Australian dollar and 0.2% against the euro and yuan.

Ten-year sovereign debt yields fell 4 basis points overnight in the U.S. and by a basis point in the U.K. and Germany but edged up a basis point in Japan. West Texas Intermediate oil slipped another 0.8%.

Share prices advanced 1.9% in Japan and 0.8% in India but fell 0.6% in China and 0.3% in Singapore. European stock markets are somewhat higher.

Chinese CPI inflation accelerated 0.2 percentage points to 3.0% in September, its first time as high as that threshold since late 2013. Producer price inflation, however, moved 0.4 percentage points more deeply into the red to a 38-month low-point of minus 1.2%. A separate statistical release out of China revealed a 0.2 percentage point rise in on-year M2 money expansion to 8.4% along with an upward spike in yuan lending to CNY 1.69 trillion in September from CNY 1.21 trillion the month before.

Japan’s tertiary index of service sector activity rose 0.4% on month in August, most since April, but the year-on-year 0.6% advance was down sharply from 1.5% in the year to July. A preliminary estimate of a 1.2% monthly drop in industrial production in August was left unrevised. Capacity utilization sank 2.9% on month and 4.8% on year in the latest reported month.

South Korea’s trade surplus plunged to $5.97 billion in September from $9.62 billion a year earlier on an 11.7% drop in exports.

The Bank of Japan published its quarterly assessment of regional economic conditions. The view regarding Hokkaido was revised upward to “expanding moderately.” All other regions were assessed at the same trend as determined three months ago in spite of external risks.

The ZEW expectations index, a gauge of investor expectations regarding Germany, slid marginally to a 2-month low of -22.8, which remains 44.2 index points below this data series’ long-term average. Moreover, perceptions of current conditions fell sharply to a 114-month low. ZEW index results for the whole euro area mirrored the movements of German data regarding growth but, in addition, revealed a deep deceleration in expected inflation.

British jobless insurance claims went up 21.1k in August and by 69k over the past 3 months. Average weekly earnings growth decelerated to 3.8%.

The Swiss PPI/import price index 0.3% on month in September, depressing its year-on-year decline further to 2.0%. Domestic producer prices were 1.0% lower than a year earlier.

French CPI inflation slowed to a 4-month low of 0.9% in September, and Danish PPI inflation of negative 0.1% was at a 2-month low.

Norway in September experienced its first trade deficit since November 2017 as exports plunged 19.5% compared to the year-earlier level.

Turkish unemployment climbed for a third straight month to a 6-month high of 14.3% in August. Turkish retail sales posted their twelfth consecutive on-year decline in August, a drop of 4.3%.

In the United States, the NY Empire State manufacturing index rose two points in October to a 2-month high of 4.0, which also was 12.6 index points above June’s downward spike to -8.6.

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

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