Concerns Return to Market

Concerns Return to Market

November 17, 2017

Questions have resurfaced about the strength of China’s economy. Retail sales, industrial production, and business investment posted slower on-year gains in October, and the People’s Bank of China has injected heavy amounts of liquidity to the banking system via reverse repurchase agreements.

The Mueller probe into Russian influence in the 2016 U.S. elections appears to be broadening.

Separate and quite different tax cut bills were passed on partisan lines by the full U.S. House of Representatives and the Senate Finance Committee. Such will increase fiscal debt significantly and redistribute income and wealth in a way that will widen inequality further.

Federal Reserve leadership is undergoing a substantial shift.

Investors continue to worry about perceived equity market overvaluation and what appears to be a way overdue need for a correction.

In an address before the Japanese Diet, Prime Minister Abe revealed details of plans to bolster its defense against possible North Korean missile attacks.

Several central bankers spoke overnight. ECB Vice President Constancio defended the need for continuing an ultra-stimulative policy based on sub-target inflation and slow wage growth. ECB President Draghi said Euroland’s recovery has become more self-generating but that quantitative stimulus was extended to dispel any notion that interest rates might be raised anytime soon. Fed Governor Lael Brainard argued in favor of better consumer privacy against internet lenders and said traditional banks have a role to play in this policing. San Francisco Fed President Williams said that the next recession may need to be countered by central bank stimulus around the world that goes beyond the mere use of lowered interest rates.

The dollar lost ground overnight, falling 0.4% against the yen, 0.2% to the euro, Swiss franc, and sterling, and 0.1% relative to the peso and loonie. But the U.S. currency is up 0.9% against the kiwi and 0.6% versus the Aussie dollar.

Some stock markets extended the rise seen Thursday in North America. Equities rose 0.7% in India and Taiwan, 1.2% in Singapore, 0.5% in Hong Kong, and 0.2% in Indonesia, Japan and Australia. There have been marginal gains in France, Switzerland, Germany and the U.K. but declines in Spain, Italy, and China.

The 10-year JGB yield dropped back 2 basis points to 0.02%. The 10-year British gilt yield rose a basis point, and the German bund yield is steady.

Commodity prices have strengthened, led by a 1.8% climb in WTI oil. Gold is 0.3% firmer.

Producer output prices in New Zealand increased 1.0% last quarter and were 5.3% higher than a year earlier. Such had climbed 1.3% in 2Q and 1.4% in 1Q. Producer input prices also went up 1.0% in the third quarter, but the on-year rate of increase slowed 0.4 percentage points to 4.3%.

New Zealand’s manufacturing purchasing managers index dipped 0.3 points to a 3-month low of 57.2 in October. That’s still not far off from this year’s best result, which was 58.0 last March.

Construction output growth in the euro area ticked up merely 0.1% in September in the fifth straight sluggish monthly performance in a row. Output also rose just 0.1% in the third quarter, cutting that quarter’s on-year increase to 3.0% from 3.7% in the second quarter.

Euroland’s current account surplus widened to a seasonally adjusted EUR 37.8 billion in September from EUR 34.5 billion in August, EUR 30.6 billion in July and EUR 24.1 billion in June. As a percent of GDP, the current account surplus continues to exceed 3.0%.

Australian motor vehicle sales were flat in October and just 1.0% higher than a year earlier.

Malaysian real GDP grew 1.8% last quarter. The on-year pace accelerated to 6.2%.

U.S. housing starts and the Kansas City monthly manufacturing index get released today. Canada reports consumer price inflation.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

Tags: Euroland construction output and current account, Japanese Prime Minister Abe


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