Concerns Over Trade Lessen

December 4, 2019

Zig-zagging perceptions from day to day about the likelihood of a U.S.-Sino trade deal have been a major source all year of short-term financial market volatility. The shifts often happen inexplicably, like changing weather. Today investors are more hopeful than yesterday that a deal will be reached to culminate phase I of the trade negotiations.

Asian equities took their cue from Tuesday’s sell-off in Europe and North America, dropping by 1.3% in Hong Kong, 1.1% in Japan, 0.4% in Singapore and India, and  1.6% in Australia. In contrast, stock markets are up at least 1.0% so far today in Germany, France, Spain, Italy and Switzerland. Likewise, U.S. market indices are up about 0.75%.

Ten-year sovereign debt yields rebounded six basis points in the U.K. and U.S. and by two bps in Germany. But the 10-year JGB yield slipped two bps earlier in the day.

WTI oil has made a big upward move of over 4.0%. Comex gold is down  0.4%.

The dollar fell overnight by 0.8% against sterling, 0.5% versus the peso and 0.3% vis-a-vis the yuan, but changes have been scant relative to the euro, yen, Swiss franc, loonie or Aussie dollar.

The Bank of Canada Board left its overnight interest rate target unchanged at 1.75% and released a statement that projects resilient domestic consumption and business investment and inflation close to the 2% target. Officials continue to watch for damage from global trade conflicts.

The National Bank of Poland’s Monetary Council retained a 1.5% reference interest rate. That’s been the level since a pair of 50-basis point cuts in January and March of 2015. In a released statement, officials at the bank assess Poland’s economic outlook as still favorable, project near-target inflation, but warn of continuing external uncertainties.

Australian GDP growth decelerated to a quarter-on-quarter 0.4% in 3Q due  in part to a contraction of  investment, but year-on-year growth rose to 1.7%, most since 1Q.

Canadian labor productivity remained low in the third quarter, edging just 0.2% above the 2Q level and posting a 0.6% on-year rise for a third straight quarter. On-year growth  in unit labor costs accelerated to 3.8% from 2.6% in the second quarter and 2.4% in the third quarter of 2018.

ADP’s estimate of U.S. private non-farm employment growth in November is a rise of only 67k workers, which is only about half as many as analysts were expecting. Better U.S. news came from greater-than-forecast motor vehicle sales of 17.1 million annualized.

The ISM-compiled U.S.  non-manufacturing purchasing managers index slipped back to a 2-month low of 53.9 because of a surprisingly large 5.4-point drop last month in the sub-component for business activity and sales. The IHS-compiled U.S. composite and service-sector PMI readings, by contrast, increased to four-month highs. These data are consistent with fourth quarter GDP growth of 1.5-1.9% at an annualized rate.

Euroland’s service-sector PMI was revised higher but still came in 0.3 points lower in November than October. The composite PMI score of 50.6 was unchanged from the prior month and indicates mostly stagnant economic activity. Individual composite PMI readings ranged from a 2-month high of 49.4 in Germany to a 2-month low of 52.1 in France.

Japan’s services and composite PMI printed in November at 2-month highs of 50.3 and 50.0, which also reflects very low growth.

On a better note, China’s services and composite PMI readings of 53.5 and 53.2 reflect the strongest growth in seven and twenty one months, respectively. India’s services and composite PMIs — both 52.7 — were each four-month highs.

Hong Kong’s private purchasing managers index, a 21-year low of 38.5, reflects the civil protests in that former British colony.

Singapore’s private PMI rose 3.o points to a 4-month high of 50.4.

The AIG-compiled Australian service-sector PMI fell 0.5 to a 2-month low of 53.7.

The Standard Bank-compiled South African private PMI printed at a 4-month low of 48.6 and the second lowest reading in a year.

In Lebanon which like Hong Kong also has experience street protests, the private PMI plunged 11.3 points to 37.0, the lowest reading in this data series going back to May 2013.

Britain’s service-sector purchasing managers index dropped 0.7 points to an 8-month low of 49.3 and resulted in the joint-lowest composite reading since July 2016.

The Brazilian services PMI (50.6) represents a 5-month low. The composite Brazilian PMI of 51.8 matched October’s 3-month low.

Central banks in India and Chile are holding monetary  policy reviews today.

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

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