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Investors wait for news
International Perspective - October 13, 2017
By Anne D. Picker, Chief Economist


Global Markets

Most equity indexes advanced last week. Investors idled with few catalysts to provoke action. Traders waited for the avalanche of third quarter earnings to begin — in the U.S. they began with reporting by major banks at week's end. Investors continued to monitor central bank speak in the run up to meetings to be held beginning on October 25 and ending the following week when the European Central Bank and the Banks of Canada, Japan and England along with the Federal Reserve hold policy meetings. And of course, there is the coming avalanche of earnings reports that will be released in the next couple of weeks.


Global Stock Market Recap

  2016 2017 % Change
Index Dec 31 Oct 6 Oct 13 Week 2017
Australia All Ordinaries 5719.1 5777.4 5884.8 1.9% 2.9%
Japan Nikkei 225 19114.4 20690.7 21155.2 2.2% 10.7%
Topix 1518.61 1687.16 1708.6 1.3% 12.5%
Hong Kong Hang Seng 22000.6 28458.0 28476.4 0.1% 29.4%
S. Korea Kospi 2026.5 * 2473.6 3.3% 22.1%
Singapore STI 2880.8 3291.3 3319.1 0.8% 15.2%
China Shanghai Composite 3103.6 * 3390.5 1.2% 9.2%
India Sensex 30 26626.5 31814.22 32432.7 1.9% 21.8%
Indonesia Jakarta Composite 5296.7 5905.4 5924.1 0.3% 11.8%
Malaysia KLCI 1641.7 1764.0 1755.3 -0.5% 6.9%
Philippines PSEi 6840.6 8310.9 8447.9 1.6% 23.5%
Taiwan Taiex 9253.5 10532.8 10724.1 1.8% 15.9%
Thailand SET 1542.9 1696.0 1712.5 1.0% 11.0%
UK FTSE 100 7142.8 7522.9 7535.4 0.2% 5.5%
France CAC 4862.3 5359.9 5351.7 -0.2% 10.1%
Germany XETRA DAX 11481.1 12955.9 12991.9 0.3% 13.2%
Italy FTSE MIB 19234.6 22392.3 22413.5 0.1% 16.5%
Spain IBEX 35 9352.1 10185.5 10258.0 0.7% 9.7%
Sweden OMX Stockholm 30 1517.2 1646.3 1642.5 -0.2% 8.3%
Switzerland SMI 8219.9 9252.1 9311.7 0.6% 13.3%
North America
United States Dow 19762.6 22773.67 22871.7 0.4% 15.7%
NASDAQ 5383.1 6590.2 6605.8 0.2% 22.7%
S&P 500 2238.8 2549.3 2553.2 0.2% 14.0%
Canada S&P/TSX Comp. 15287.6 15728.3 15807.2 0.5% 3.4%
Mexico Bolsa 45642.9 50302.9 49981.9 -0.6% 9.5%


Europe and the UK

Equities traded during the week within a narrow range with small gains and losses as seen in graph to the left. At week's end, The FTSE was up 0.2 percent, the CAC added 0.3 percent and the SMI was 0.6 percent higher. The CAC lost 0.2 percent as did the OMX. The IBEX, despite the Catalonian situation was up 0.7 percent. Economic data were on the light side during the week. Markets have had a difficult time extending their gains in recent days due to a lack of catalysts. However, investors are keeping a watchful eye on the IMF's annual meeting in Washington D.C., where European Central Bank President Mario Draghi and other ECB members are due to deliver speeches.


The SMI, after reaching the 9,300 level for the first time since the summer of 2015 during Thursday's trading session, managed to close above that level on Friday. Spain's IBEX has lagged over the past two weeks amid concerns over the country's future following an independence referendum in Catalonia that was declared illegal by authorities in Madrid.


The FTSE rallied Thursday, boosted by a fresh decline in Brexit bellwether pound sterling after the European Union's chief negotiator Michel Barnier said Thursday that not enough progress had been made to recommend that talks move on to the future trade relationship between the EU and UK. Sterling slid against the US dollar as he said talks were in an "impasse" due to an elusive compromise over the amount Britain would contribute to the EU budget. The weak pound, given the dependence of FTSE components on international trade, boosts the index. The FTSE 100 has tended to move in the opposite direction to the pound since the Brexit vote in June last year. Sterling weakness has boosted the multinational groups in the index that book revenue in foreign currency and report earnings in sterling, since those overseas earnings have become relatively more valuable. The currency rallied again on Friday.


Spanish stocks have lagged their European peers this month on worries of a possible break-up of the country following Catalonia's independence referendum on October 1st that Madrid deemed unconstitutional. Concerns however eased after the region's separatist leader made only a symbolic declaration, triggering a response from the Spanish prime minister that could deepen the confrontation but could also signal a possible way out of the crisis. European equities have broadly brushed off the Spanish tensions while the decline on the IBEX remains limited. The index added 0.7 percent during the week and is 9.7 percent higher so far this year.


Asia Pacific

Equities advanced as indexes for China and South Korea returned from a week's closure for holidays. Only the Malaysian KLCI retreated. The Kospi jumped 3.3 percent on the week as geopolitical worries regarding North Korea eased. The Hang Seng managed to edge up 0.1 percent on the week. The Australian market closed at its highest level since June 2017, reflecting gains by healthcare stocks after the federal government announced plans for proposed healthcare reforms. The All Ordinaries added 1.9 percent on the week.


China's Shanghai Composite added 1.2 percent on the week, ahead of its 19th national congress of the Communist Party of China beginning on October 18. The congress is held every five years. This year's meeting is likely to see president Xi Jinping further bolster his position as one of the most powerful leaders in modern Chinese history. The official task of the delegates selected to attend this year's event is to study and approve new policies and elect the people who will lead China for the next five years. Since taking power at the last such gathering in November 2012, Xi has established himself as one of China's most dominant leaders since Mao.


Upbeat readings for China's import and export growth will be welcome prior to the congress. Imports grew 18.7 percent in September from a year earlier accelerating from 13.3 percent in August. Exports rose 8.1 percent — the most in three months. China's economy has surprised with its resilience so far in 2017, expanding by 6.9 percent in the first half, though most market watchers have stuck to predictions that it would lose some momentum in coming months.


Japan's Nikkei was up 2.2 percent and surged to a fresh 21-year high, boosted by optimism that Prime Minister Shinzo Abe's ruling party will win the general elections on October 22. Traders said that belief that the ruling party bloc will win Japan's general election underpinned overall market sentiment. Media forecasts showed Prime Minister Shinzo Abe's ruling bloc heading for a big win in a snap election, assuring investors that his "Abenomics" program of easy monetary policy, fiscal spending and promised structural reforms would continue. Prime Minister Shinzo Abe, who is one of postwar Japan's longest-serving leaders with nearly five years in office, has helped push markets up by encouraging loose monetary policy. The Bank of Japan's annual ¥6 trillion purchases in exchange-traded stock funds provide a steady source of buying through market ups and downs.


The Nikkei hit a two-decade closing high on Wednesday, a milestone for the nation's long-suffering stock market, driven by stronger earnings, an improved economy and a better environment for shareholders. Over the past 2½ decades, the Nikkei has broken above 20,000 several times only to lose ground later. It has never gotten anywhere close to its record closing high of 38,915.87 on December 29, 1989. A previous surge above 20,000 in 2015 fizzled out after fears emerged about China's economic outlook. Japan's surging stock market set the tone for Asia Friday, with its leading index topping 21,000 for the first time since 1996.



The U.S. dollar retreated against all of its major counterparts including the yen, euro, pound sterling, Swiss franc and the Canadian and Australian currencies. The recent rebound of the dollar since early September stalled on a combination of less optimism on tax reform and continued economic strength abroad. Investors were closely watching the few economic reports that were released at the end of the week. Friday's consumer price index report disappointed because of the modest 0.1 percent monthly increase in core prices (excluding food and energy). The dollar gyrates with expectations of whether the Federal Reserve will actually increase its fed funds rate at its December meeting, given its concerns regarding inflation — rather the lack of it. The recent rebound of the dollar since early September stalled on some combination of less optimism on tax reform and continued economic strength abroad. 


The pound sterling fell against the dollar Thursday after the European Union's chief negotiator said Brexit talks were at an "impasse", adding to political uncertainty for a currency that has fallen over 12 percent since last year's EU vote. The European Union and Britain did not make major progress this week in talks about the country's exit from the bloc and are stuck over how much Britain should pay when it leaves, according to EU's Michel Barnier. London's refusal to spell out a detailed cash offer was "very worrying" for business, he said. But despite the currency's decline, it still managed to be up on the week against the U.S. currency.


Selected currencies — weekly results

2016 2017 % Change
Dec 30 Oct 6 Oct 13 Week 2017
U.S. $ per currency
Australia A$ 0.7215 0.777 0.789 1.5% 9.3%
New Zealand NZ$ 0.6948 0.709 0.719 1.4% 3.4%
Canada C$ 0.7443 0.798 0.801 0.5% 7.6%
Eurozone euro (€) 1.0534 1.173 1.182 0.7% 12.2%
UK pound sterling (£) 1.2333 1.307 1.329 1.7% 7.8%
Currency per U.S. $
China yuan 6.9450 6.653 6.580 1.1% 5.6%
Hong Kong HK$* 7.7533 7.806 7.808 0.0% -0.7%
India rupee 67.9238 65.373 64.928 0.7% 4.6%
Japan yen 116.8100 112.660 111.870 0.7% 4.4%
Malaysia ringgit 4.4862 4.237 4.222 0.4% 6.3%
Singapore Singapore $ 1.4465 1.364 1.350 1.0% 7.2%
South Korea won 1205.8300 1141.970 1128.950 1.2% 6.8%
Taiwan Taiwan $ 32.3260 30.389 30.141 0.8% 7.2%
Thailand baht 35.8100 33.411 33.061 1.1% 8.3%
Switzerland Swiss franc 1.0174 0.9783 0.974 0.4% 4.4%
*Pegged to U.S. dollar
Source: Bloomberg


Indicator scoreboard


August industrial production excluding construction was up 3.0 percent on the month and 4.6 percent from a year ago. Industrial output (including construction) jumped 2.6 percent on the month and although July was shaded to show a 0.1 percent decline, annual growth still climbed from 4.1 percent to 4.5 percent, a 3-month high. August's monthly surge was the best performance in more than six years and reflected impressive gains in output across all of the main subsectors with the exception of the volatile construction category (down 1.2 percent). Capital goods, after dropping 0.3 percent in July, led the way with a 4.8 percent spike while consumer goods increased 2.1 percent and intermediates, 1.8 percent. Overall manufacturing advanced 3.2 percent. Elsewhere, energy rose 1.7 percent.


August seasonally adjusted merchandise trade surplus bounced back from a slightly smaller revised €19.3 billion in July to €21.6 billion in August — the most black ink since April 2016. Unadjusted, the surplus stood at €20.0 billion, up from €19.6 billion a year ago. The widening in the adjusted surplus reflected a 3.1 percent monthly increase in exports (to a new record high) that more than offset a 1.2 percent rise in imports. For the former, this was their seventh advance in the last eight months and their sharpest gain in a year. Imports have increased in five of the last six months. Unadjusted annual growth of exports was 7.2 percent (Eurozone 10.6 percent) after 8.0 percent in July while imports were 8.5 percent higher (Eurozone 8.5 percent) after a 9.6 percent advance last time.


United Kingdom

August industrial production was up a monthly 0.2 percent following an upwardly revised 0.3 percent gain in July. Annual growth of output climbed from 1.1 percent to 1.6 percent. Production has now expanded for five consecutive months. The key manufacturing sector advanced a monthly 0.4 percent although that did follow a slightly smaller revised increase (also 0.4 percent) last time. Solid increases in metal products (2.7 percent), pharmaceuticals (3.2 percent) and other manufacturing and repair (1.5 percent) did most of the work. However, it was not all good news as there were marked declines in electrical equipment (4.8 percent), textiles & leather (4.7 percent) and transport equipment (2.6 percent). Total industrial production found additional support from water supply (0.4 percent) and electricity & gas (0.4 percent) but was hit by a fall in mining & quarrying (2.0 percent).


August global goods trade deficit was Stg14.24 billion, up from an already larger revised Stg12.83 billion in July. The surprisingly sharp headline deterioration reflected a 4.5 percent monthly jump in imports that swamped an otherwise perfectly decent 1.5 percent rise in exports. Sharp swings in the balance on erratic commodities were an important factor distorting the data. However, the underlying position, which excludes oil & other erratic items, was little better with the shortfall here widening out from Stg10.81 billion to Stg12.41 billion. Core exports were up 0.8 percent on the month but imports surged 5.1 percent.




August private sector machinery orders (excluding volatile items) increased 3.4 percent on the month after advancing 8.0 percent in July. This series, which excludes orders for ships and those from electric power companies, is considered a proxy for capital expenditures. On the year, orders were up 5.0 percent. Manufacturing orders were up 16.1 percent on the month after an increase of 2.9 percent in July. Non-manufacturing orders (excluding volatile items) increased 3.1 percent, down from 4.8 percent in July.


September producer price index was up 3.0 percent on the year after increasing 2.9 percent in August. On the month, the PPI was up 0.2 percent after registering no change in August. On the year, transportation equipment prices fell 0.3 percent after a drop of 0.5 percent in August, while prices of petroleum and coal products increased from 12.4 percent to 13.7 percent. Prices of chemicals & related products also posted a stronger annual increase, up 3.3 percent in September after increasing 3.0 percent in August. However, beverage & food prices were down 0.2 percent on the year. Electrical machinery & communications equipment fell 1.2 percent on the year in September after dropping 0.7 percent in August.



September merchandise trade surplus narrowed from $41.99 billion in August to $28.47 billion in September. Exports increased 8.1 percent after increasing 5.5 percent in August. Imports increased 18.7 percent, up from 13.3 percent in August. Export growth was mainly driven by demand from outside of the region. Chinas exports to the United States were up 13.8 percent on the year, after an increase of 8.4 percent in August, while exports to the European Union accelerated to 10.5 percent from 5.2 percent. Exports to Japan, however, were flat after increasing by 1.1 percent in August. Exports advanced a seasonally adjusted 4.4 percent on the month after dropping 1.5 percent in August. Seasonally adjusted imports surged 11.9 percent after declining by 0.9 percent in August. In domestic currency terms, China's trade surplus narrowed from CNY286.5 billion in August to CNY193.0 billion in September. Exports grew 9.0 percent on the year, up from 6.9 percent in August, while imports in yuan terms picked up from 14.4 percent to 19.5 percent.


Bottom line

Equities fluctuated in a narrow range last week as they waited for earnings and economic news that would provide a catalyst for trading. In Japan, core machine orders (excluding volatile items such as ships and those from electric power companies) gained and producer prices edged upward from a year ago. China's merchandise trade data and especially imports jumped indicating strong domestic demand.


There are no central bank meetings during the week but the Federal Reserve will publish its Beige Book in preparation for the FOMC meeting on October 31 and November 1. In the UK, it is a big week with both the consumer and producer price indexes, retail sales and labour market data due to be released. The week is also a big one for China with releases of consumer and producer prices along with third quarter gross domestic product. The 19th party congress begins on October 18. On Sunday, October 22, Japan will hold an election for the lower house of the Diet (parliament).


Looking Ahead: October 16 through October 20, 2017

Central Bank activities
Oct 18 United States FOMC Beige Book Published
The following indicators will be released this week...
Oct 16 Eurozone Merchandise Trade (August)
Oct 17 Eurozone Harmonized Index of Consumer Prices (September final)
Germany ZEW Survey (October)
Italy Merchandise Trade (August)
UK  Consumer Price Index (September)
Producer Price Index (September)
Oct 18 UK  Labour Market Report (September)
Oct 19 UK  Retail Sales (September)
Asia Pacific
Oct 16 China Consumer Price Index (September)
Producer Price Index (September)
Oct 19 Japan Merchandise Trade Balance (September)
Australia Labour Force Survey (September)
China Gross Domestic Product (Q3.2017)
Retail Sales (September)
Industrial Production (September)
Oct 18 Canada Manufacturing Sales (August)
Oct 20 Canada Consumer Price Index (September)
Retail Sales (August)


Anne D Picker is the author of International Economic Indicators and Central Banks.