Market Talk – October 31, 2019

Posted Oct 31, 2019 by Martin Armstrong |

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ASIA:

The US is not the only one suffering the ill effects of the trade war, as China announced its sixth consecutive month of manufacturing declines. The purchasing managers’ index (PMI) fell to 49.3 in October from 49.8 the month prior. A reading below 50 signals a contraction. Non-manufacturing fell as well to 52.8 in October from 53.7 the month prior. Yesterday, the US Commerce Department also noted worsening manufacturing conditions as imports continue to exceed exports.

Further deteriorating China’s economic conditions, the US is set to implement a 15% tariff on $160 billion worth of Chinese exports on December 15. The Chinese are hopeful that this tariff could be eliminated through negotiations. President Xi and President Trump were set to meet in Chile where it was largely expected that they would officially sign phase one of the verbal trade deal. The Chile meeting was canceled due to unrelated reasons. This Thursday, President Trump announced that he still plans to meet with President Xi to sign the agreement in the near future. The details have yet to be announced.

North Korea has told Washington that they have until the end of the year to resume denuclearization talks. The deadline has been largely ignored. To make itself heard North Korea launched two missiles into Japanese waters this Thursday. “We are aware of reports of a North Korean missile launch. We are continuing to monitor the situation and consulting closely with our allies in Japan and South Korea,” a White House official stated.

The major Asian stock markets had a mixed day today:

Shanghai decreased 10.26 points or -0.35% to 2,929.06
Kospi increased 3.21 points or 0.15% to 2,083.48
ASX 200 decreased 26.10 points or -0.39% to 6,663.40
NIKKEI 225 increased 83.92 points or 0.37% to 22,927.04
Hang Seng increased 239.01 points or 0.90% to 26,906.72
SENSEX increased 77.18 points or 0.19% to 40,129.05

The major Asian currency markets had a mixed day today:

AUDUSD decreased 0.0016 or 0.23% to 0.6886
NZDUSD increased 0.0019 or 0.30% to 0.6406
USDJPY decreased 0.8460 or 0.78% to 107.9840
USDCNY increased 0.0088 or 0.12% to 7.0516

Precious Metals:

Gold increased 16.8 USD/t oz. or 1.12% to 1,510.71
Silver increased 0.2145 USD/t. oz or 1.20%% to 18.0811

Some economic news from last night:

China:

Chinese Composite PMI (Oct) decreased from 53.1 to 52.0
Manufacturing PMI (Oct) decreased from 49.8 to 49.3
Non-Manufacturing PMI (Oct) decreased from 53.7 to 52.8

Japan:

BoJ Interest Rate Decision remain the same at -0.10%
Foreign Bonds Buying decreased from 513.8B to -1,018.5B
Foreign Investments in Japanese Stocks increased from 522.4B to 649.5B
Industrial Production (MoM) (Sep) increased from -1.2% to 1.4%
Industrial Production forecast 1m ahead (MoM) (Oct) decreased from 1.9% to 0.6%
Industrial Production forecast 2m ahead (MoM) (Nov) decreased from -0.5% to -1.2%

South Korea:

Industrial Production (MoM) (Sep) increased from -1.8% to 2.0%
Industrial Production (YoY) (Sep) increased from -3.3% to 0.4%
Retail Sales (MoM) decreased from 3.9% to -2.2%
Service Sector Output (MoM) (Sep) decreased from 1.1% to -1.2%

Australia:

Building Approvals (MoM) (Sep) increased from -0.6% to 0.0%
Export Price Index (QoQ) (Q3) decreased from 3.8% to 1.3%
Housing Credit (Sep) remain the same at 0.2%
Import Price Index (QoQ) (Q3) decreased from 0.9% to 0.4%
Private House Approvals (Sep) increased from -1.6% to 2.8%
Private Sector Credit (MoM) (Sep) remain the same at 0.2%

New Zealand:

Building Consents (MoM) (Sep) increased from 0.9% to 7.2%
ANZ Business Confidence (Oct) increased from -53.5 to -42.4
NBNZ Own Activity (Oct) decreased from -1.8% to -3.5%

Singapore:

Bank Lending (Sep) decreased from 684.9B to 684.5B

Indonesia:

M2 Money Supply (YoY) (Sep) decreased from 7.30% to 7.10%
Foreign Direct Investment (YoY) (Q3) increased from 9.60% to 17.80%

Some economic news from today:

Japan:

Household Confidence (Oct) increased from 35.6 to 36.2
Housing Starts (YoY) (Sep) increased from -7.1% to -4.9%
Construction Orders (YoY) (Sep) increased from -25.9% to -6.8%

Singapore:

Business Expectations (Q3) increased from -11.00 to -5.00

HongKong:

GDP (QoQ) decreased from -0.4% to -3.2%
GDP (YoY) decreased from 0.5% to -2.9%
M3 Money Supply (Sep) decreased from 1.9% to 1.8%

India:

Federal Fiscal Deficit (Sep) increased from 5,538.40B to 6,515.54B
Infrastructure Output (YoY) (Sep) decreased from -0.5% to -5.2%

EUROPE/EMEA:

The European Central Bank’s QE policy has failed to stimulate inflation and has begun to have a negative impact on EU members’ balance sheets. Despite failing to stimulate the European economy, the ECB announced that they will implement their bond-buying program yet again in September at a rate of 20 billion euros per month. Former Greek finance chief Greek finance chief described it best during an interview with CNBC, “QE the way it has been restructured resembles an antibiotic that has stopped working because the bacteria have grown adapted to it.”

Instead of restructuring worsening policies, the ECB is searching for a scapegoat. Christine Lagarde blamed EU member states for not spending more to stimulate the European economy. “Why not use that budget surplus and invest in infrastructure? Why not invest in education and why not invest in innovation?” Lagarde questioned. Lagarde will be appointed as ECB president this Friday and seems poised to carry out much of the same policies as Mario Draghi.

The Bank of England’s current governor, Mark Carney, is set to leave office on January 31, which is also the deadline for Britain’s exit from the European Union. The BoE was set to appoint a new governor before the December 12 election, however, today it was noted that no successor will be appointed until the fall. Minouche Shafik and Paul Tucker are two potential candidates, but no official mention of a successor will be made until after Brexit.

The Netherlands has implemented a new policy to help consumers struggling with debt. An estimated 2.3 million households in the country are struggling to maintain payments and have fallen deeper into debt with mounting interest. Geldfit is a new web-based service to educate debtors on how to escape their current financial situation. The site will include live representatives that can be reached by phone or email, as well as debt calculators for individuals to see what future payments may be. “In this way, financial problems can be tackled when they are still small and we can reach many more people early to prevent debts”, stated the Chairman of the Dutch Banking Association.

The major Europe stock markets had a negative day today:

CAC 40 decreased 36.00 points or -0.62% to 5,729.86
FTSE 100 decreased 82.40 points, or -1.12% to 7,248.38
DAX 30 decreased 43.44 points or -0.34% to 12,866.79

The major Europe currency markets had a mixed day today:

EURUSD decreased 0.0005 or 0.04% to 1.1144
GBPUSD increased 0.00348 or 0.27% to 1.29358
USDCHF decreased 0.0025 or 0.25% to 0.9867

Some economic news from Europe today:

Germany:

German Retail Sales (YoY) (Sep) increased from 3.1% to 3.4%
German Retail Sales (MoM) (Sep) increased from -0.1% to 0.1%

Norway:

Credit Indicator (YoY) (Sep) increased from 5.5% to 5.8%
Central Bank Currency Purchase (Nov) remain the same at -700.0M

France:

French CPI (MoM) increased from -0.3% to -0.1%
French CPI (YoY) decreased from 0.9% to 0.7%
French HICP (YoY) decreased from 1.1% to 0.9%
French HICP (MoM) increased from -0.4% to -0.1%

Spain:

Spanish Current account (Aug) increased from 3.24B to 3.32B
Spanish GDP (YoY) (Q3) remain the same at 2.0%
Spanish GDP (QoQ) (Q3) remain the same at 0.4%

Italy:

Italian Monthly Unemployment Rate (Sep) increased from 9.6% to 9.9%
Italian GDP (YoY) (Q3) increased from -0.1% to 0.3%
Italian GDP (QoQ) (Q3) remain the same at 0.1%
Italian CPI (YoY) (Oct) remain the same at 0.3%
Italian CPI (MoM) (Oct) increased from -0.6% to 0.0%
Italian HICP (YoY) (Oct) remain the same at 0.2%
Italian HICP (MoM) (Oct) decreased from 1.4% to 0.2%

Euro Zone:

Core CPI (YoY) increased from 1.0% to 1.1%
CPI (YoY) (Oct) decreased from 0.8% to 0.7%
CPI, n.s.a (Oct) increased from 105.29 to 105.45
GDP (YoY) decreased from 1.2% to 1.1%
GDP (QoQ) remain the same at 0.2%
HICP ex Energy & Food (YoY) (Oct) remain the same at 1.2%
Unemployment Rate (Sep) remain the same at 7.5%

US/AMERICAS:

American farmers are increasingly facing bankruptcy due to the trade war with China. In September, US farm bankruptcies reached an eight-year peak after climbing to 24%. Some are also attributing losses to unfavorable weather conditions, although that alone could not account for such a high loss. Phase one of the unofficial US-China trade deal will require China to purchase large sums of US agricultural products. Until then, nearly 40% of agricultural profits ($33 billion) will come from government assisted programs.

Although the upcoming summit in Chile was canceled, President Trump assured the public today that phase one of the trade deal will be signed soon. “China and the USA are working on selecting a new site for signing of Phase One of Trade Agreement, about 60% of total deal, after APEC in Chile was canceled do to unrelated circumstances. The new location will be announced soon. President Xi and President Trump will do signing!” President Trump tweeted.

On a less optimistic note, Secretary of State Mike Pompeo said China’s communist policies are incompatible with US democracy. “We accommodated and encouraged China’s rise for decades – even at the expense of American values, and security, and good sense. We did everything we could to accommodate China’s rise, in the hope that Communist China would become more free, market-driven, and ultimately, hopefully, more democratic,” Pompeo stated. “It is no longer realistic to ignore the fundamental differences between our two systems.” Signing phase one of the trade deal would be the first step in proving that the two economic powerhouses can stand on common ground.

Despite dropping interest rates for the third time this year, President Trump is still dissatisfied with the current 1.50% to 1.75% target. The president pointed to the weak manufacturing report produced by the Commerce Department yesterday and claimed the strong dollar is hurting American exports. Furthermore, he would like the US to have rates lower than other countries and specifically mentioned Germany and Japan. However, lower to negative rates have not spurred either country’s economy.

Splitting party lines, the House reached a verdict of 232-196 to proceed with Trump’s impeachment inquiry. Two Democrats sided with Republicans, all of whom voted against the impeachment. The impeachment process has only made it this far three times in US presidential history. The next step will be for the inquiry to be presented to the Senate. President Trump has denied any wrongdoing and claims this “witch hunt” is an attempt to strip him of power before the 2020 election.

US Market Closings:

Dow declined 140.46 points or -0.52% to 27,046.23
S&P 500 declined 9.21 points or -0.30% to 3,037.56
Nasdaq declined 11.61 points or -0.14% to 8,292.36
Russell 2000 declined 10.40 points or -0.66% to 1,562.45

Canada Market Closings:

TSX Composite declined 18.27 points or -0.11% to 16,483.16
TSX 60 declined 2.79 points or -0.28% to 986.33

Brazil Market Closing:

Bovespa declined 1,187.71 points or -1.10% to 107,219.83

ENERGY:

The oil markets had a mixed day today:

Crude Oil decreased 1 USD/BBL or -1.82% to 54.1599
Brent decreased 0.44 USD/BBL or -0.73% to 60.2007
Natural gas decreased 0.064 USD/MMBtu or -2.38% to 2.6324
Gasoline decreased 0.0397 USD/GAL or -2.39% to 1.6281
Heating oil decreased 0.0307 USD/GAL or -1.60% to 1.8846
Top commodity gainers: Bitumen (1.96%),Coffee (2.87%),Rubber (1.37%), and Ethanol (1.35 %)
Top commodity losers Gasoline(-2.39 %), Natural Gas(-2.38%), Live Cattle (-2.09%), and Cotton (-2.02%)

The above data was collected around 15:20 EST on Thursday.

BONDS:

Japan -0.16%(-4bp), US 2’s 1.55% (-8bps), US 10’s 1.69%(-11bps), US 30’s 2.19%(-8bps), Bunds -0.40% (-5bp), France -0.10% (-4bp), Italy 1.03% (-6bp), Turkey 12.67% (-22bp), Greece 1.19% (-51bp), Portugal 0.15% (-6bp), Spain 0.25% (-5bp) and UK Gilts 0.63% (-6bp).