BoJo Shocker, Dovish RBA Minutes, and Some Robust U.S. Data

December 17, 2019

The pound hit an air pocket overnight, dropping 1.3% against the dollar after Prime Minister Johnson rejected the option of further extensions to Brexit talks. The lack of any deal is back in play. As things stand, Britain is to leave the EU at end-January and any transition period into full Brexit ends before 2021. The 10-year gilt yield fell four basis points, but the Ftse is only 0.2% softer.

Minutes from this month’s Reserve Bank of Australia policy review express concern about inadequate wage growth and reiterate a readiness to reduced the record low official cash rate of 0.75% even further if needed. The Aussie dollar traded down 0.5% against its U.S. counterpart.

A 1.1% rebound during November after a 0.9% drop in October of U.S. industrial production, which  in part reflects the settlement of the GM strike, surpassed expectations and the estimated boost from GM. Production was still 0.8% lower than in November 2018. Capacity usage climbed 0.7 percentage points to a 2-month high. Separate U.S. data releases revealed a 4.1 percentage point increase in the IBD/TIPP optimism index to a 7-month high of 57.0 and greater-than-forecast U.S. job openings in October according to the Jolts survey by the Labor Department. In addition, housing starts and building permits last month exceeded expectations. Starts went up 3.6% on month and 13.6% on year, while permits climbed 1.4% on month and 11.1% compared to November 2018 levels.

The dollar rose 0.3% against the euro and kiwi, held steady  overnight relative to the yen, yuan and peso, and dipped 0.1% versus the loonie and Swiss franc.

U.S. stocks are trading modestly higher. In other stock markets, share prices advanced Tuesday by 1.3% in China, Taiwan and South Korea, 1.2% in Hong Kong, 0.9% in India and 0.5% in Japan. But in Europe, the German Dax, Spanish Ibex, and Paris Cac show losses so far of 0.7%, 0.5%, and 0.3%.

The 10-year German bund yield eased a basis point, while the 10-year U.S. Treasury and Japanese JGB yields are unchanged.

WTI oil rose 0.8%, whereas  the price of Comex gold is steady.

At Hungary’s final scheduled review of monetary policy, the Magyar Nemzeti Bank base rate was left unchanged at 0.90%, its level since a 15-basis point cut in May 2016. The overnight deposit rate of minus 0.05% was also kept as is. A 10-basis point increase in the deposit rate last March undid a similar-sized cut made in September of 2017.  In a statement released after the policy meeting, officials affirmed that expectations of inflation remain well-anchored, indicates that growth in the coming year is apt to outpace the bank’s last formal projection, and said that muted external activity will neutralize the impact of buoyant domestic demand on inflation.

The latest batch of British labor statistics are somewhat downbeat. New jobless insurance claims (+28.8k) rose by at least 20k for a fourth straight month in November, and average weekly earnings growth slowed more than expected. Also, the CBI’s monthly industrial trends survey reveals a 2-point deterioration in the orders component to a 2-month low of negative 28.

Euroland’s seasonally adjusted trade surplus jumped 31% to a roughly 2-year high of EUR 24.5 billion in October. Exports rose 2.1% on month, whereas imports fell 0.9%. The nonadjusted surplus was EUR 28.0 billion compared to EUR 13.0 billion in November 2018, and the year-to-date EUR 183.2 billion surplus was EUR 22.7 billion greater than that in the first 11 months  of 2018.

Canada’s monthly survey  of manufacturing activity in October exposes declines of 0.7% in sales and 4.9% in orders.

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

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