Sliding Into Yearend Mode

December 18, 2019

With the yearend holidays fast approaching, it’s hard to identify overriding themes in financial markets. The dollar is mixed, with rises overnight of 0.4% against sterling, 0.2% relative to the euro and 0.1% against the yuan, no net changes versus the Swiss franc and yen, and dips of 0.3% vis-a-vis the kiwi, 0.2% against the loonie and Australian dollar, and 0.1% relative to the peso. The price of gold is flat, and WTI oil has ticked 0.1% higher.

U.S. share prices are little changed. Many investors are simply watching the impeachment in Washington. In other stock markets, Japanese and Chinese equities fell by 0.6% and 0.2%, but share prices rose 0.7% in Indonesia and 0.5% in India. The German Dax and British Ftse are up 0.5% and 0.2%.

Ten-year sovereign debt yields rose 4 basis points in Germany, 3 bps  in the U.S., and a basis point  in Great Britain, but their Japanese counterpart drifted a basis point lower.

In central bank action today, the Czech National Bank left  its 2-week repo rate unchanged at 2.0%. It’s been at that level since a 25-basis point increase in May.  There were five 25-basis point increases in 2018 and hikes  of 20 bps in August and 25 bps in November of 2017. Czech inflation has been moving upward, but manufacturing activity has been weaker than desired.

The Bank of Thailand’s policy interest rate was likewise maintained at 1.25%, which is the lowest level since 2009. Thailand’s interest rate was cut twice this year, initially in August and again last month. Each move was 25 basis points in size. A statement of explanation for today’s unanimous decision affirms that monetary policy will need to stay accommodative in the period ahead amid sub-potential economic growth and sub-target inflation. The statement revised projected growth in 2019 downward by 0.3 percentage points to 2.5%.

The German IFO Institute published its monthly business climate survey, identifying “noticeable improvement” in confidence during December. The overall index increased 1.2 index points to a reading of 96.3, a 6-month high. Expectations and perceived current conditions improved this month in tandem.

There was no month-on-month change in German producer prices last month, resulting in a 38-month on-year low. With energy prices 3.4% below their November 2018 level and all other components of the PPI up just 0.2%, the overall index recorded a 12-month 0.7% decrease.

British consumer price inflation in November stayed at October’s 35-month low of 1.5%. Core CPI was at 1.7% for a third consecutive month. Producer output price inflation in the U.K. fell 0.3 percentage points to just 0.5%, but a 2.7% on-year decline in producer input prices was smaller than that posted in October. The house price index maintained by the Office of National Statistics was just 0.7% greater than a year earlier in October, its smallest on-year advance since September 2012.

In other European data reported today, consumer confidence rose in Sweden to a 5-month high in December but fell that month in Belgium to a 2-month low. Portuguese producer prices were 1.9% lower in November than a year earlier, and Austrian CPI inflation last month of 1.1% matched October’s 3-year low. Construction output in the euro area remained weak in the first month of 4Q, slumping 1.0% on month and rising just 0.3% on year. Construction output in the third quarter had fallen 0.6% on quarter and risen 0.7% on year. CPI inflation in the euro area was confirmed at a 3-month high of 1.0% in November. That’s still well below 1.9% in the previous 12 months through November 2018.

Japan recorded a small trade deficit in November of JPY 82 billion compared to JPY 737 billion a year earlier. A 15.7% on-year drop in imports outpaced the 7.9% decline of exports. Exports and imports each slid marginally in month-on-month terms, resulting in a 61 billion yen seasonally adjusted deficit.

The ANZ business confidence index for New Zealand improved this month to a reading of -13.2 from -26.4 in November, -42.4 in October and -53.5 in September.

Canadian consumer price inflation rose 0.3 percentage points to 2.2% in November due mainly to a halving of the 12-month decline in the energy component. Core inflation remained unchanged at 1.9%.

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


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