2019 Econoday Investor's Journal Buy Now


Plenty of news to distract
International Perspective - October 20, 2017
By Anne D. Picker, Chief Economist


Global Markets

Equities were mixed as investors absorbed a variety of global political events and as earnings season picked up steam. In Europe, investors watched the unfolding of Spain's Catalonia situation along with the latest moves in the UK/EU Brexit negotiations. In Asia, the 19th congress in China was kicked off by President Xi Jinping's comments along with PBoC's Zhou's remarks. And in Japan, the outcome of Japan's snap election is eagerly awaited. In the U.S., progress of a tax cut bill began to wend its way through the Congress with the passing of a budget resolution.


Global Stock Market Recap

  2016 2017 % Change
Index Dec 31 Oct 13 Oct 20 Week 2017
Australia All Ordinaries 5719.1 5884.8 5968.6 1.4% 4.4%
Japan Nikkei 225 19114.4 21155.2 21457.6 1.4% 12.3%
Topix 1518.61 1708.62 1730.6 1.3% 14.0%
Hong Kong Hang Seng 22000.6 28476.4 28487.2 0.0% 29.5%
S. Korea Kospi 2026.5 2473.6 2489.5 0.6% 22.9%
Singapore STI 2880.8 3319.1 3340.7 0.7% 16.0%
China Shanghai Composite 3103.6 3390.5 3378.7 -0.4% 8.9%
India Sensex 30 26626.5 32432.69 32390.0 -0.1% 21.6%
Indonesia Jakarta Composite 5296.7 5924.1 5929.6 0.1% 11.9%
Malaysia KLCI 1641.7 1755.3 1740.7 -0.8% 6.0%
Philippines PSEi 6840.6 8447.9 8421.0 -0.3% 23.1%
Taiwan Taiex 9253.5 10724.1 10728.9 0.0% 15.9%
Thailand SET 1542.9 1712.5 1692.6 -1.2% 9.7%
UK FTSE 100 7142.8 7535.4 7523.2 -0.2% 5.3%
France CAC 4862.3 5351.7 5372.4 0.4% 10.5%
Germany XETRA DAX 11481.1 12991.9 12991.3 0.0% 13.2%
Italy FTSE MIB 19234.6 22413.5 22346.9 -0.3% 16.2%
Spain IBEX 35 9352.1 10258.0 10222.7 -0.3% 9.3%
Sweden OMX Stockholm 30 1517.2 1642.5 1667.5 1.5% 9.9%
Switzerland SMI 8219.9 9311.7 9237.1 -0.8% 12.4%
North America
United States Dow 19762.6 23328.63 23328.6 2.0% 18.0%
NASDAQ 5383.1 6629.1 6629.1 0.4% 23.1%
S&P 500 2238.8 2575.2 2575.2 0.9% 15.0%
Canada S&P/TSX Comp. 15287.6 15857.2 15857.2 0.3% 3.7%
Mexico Bolsa 45642.9 49988.7 49970.8 0.0% 9.5%


Europe and the UK

Most equity indexes retreated with only the CAC (up 0.4 percent) and OMX (up 1.5 percent) advancing on the week. The FTSE was down 0.2 percent, the DAX slipped 0.59 point and the SMI lost 0.8 percent. Both the IBEX and MIB were 0.3 percent lower. The situation in Spain with Catalonia continued to weigh on investors along with the outcome of UK/EU Brexit talks.


British Prime Minister Theresa May won a modest reprieve in stalled talks with the European Union as EU leaders said they would begin preparations to move into the second phase of Brexit talks in December. EU Council President Tusk indicated that EU leaders have agreed on a joint Brexit position and given the go-ahead to begin preparations for the second phase of talks. How much the apparent deal will cost the UK remains to be seen. While it is still early days, the news should be seen as at least reducing the risk of a hard Brexit and so should be good news for the pound and UK asset markets. The pound strengthened on the news.



On Thursday, the Madrid government indicated that it would suspend Catalan autonomy and begin the process of imposing direct rule. The announcement came after Catalan leader Carles Puigdemont failed to meet a deadline to withdraw a declaration of independence. Rather, the Catalan premier simply warned that the regional parliament could vote on a formal declaration of independence should the central government fail to agree to talks. The national government will hold an extraordinary meeting on Saturday where it will seek to approve measures to impose the procedures contained in article 155 in the Spanish constitution. Essentially this means that the Catalan region will be ruled directly from the Spanish capital.


Prime Minister Mariano Rajoy, who wants opposition support to be able to present a united front in the crisis, has called an emergency cabinet meeting on Saturday to pave the way for Madrid establishing central control in the region. The government on Friday would not confirm whether January elections formed a part of the package, with Rajoy saying only that the measures would be announced on Saturday. However a government spokesman saw regional elections as likely. "The logical end to this process would be new elections established within the law," said government spokesman Inigo Mendez de Vigo at a weekly government press conference.


Asia Pacific

Asian equities were mixed last week with most of the major indexes advancing. Both the Nikkei and All Ordinaries added 1.4 percent while the Topix was 1.3 percent higher. The Shanghai Composite was down 0.4 percent. However, overall gains remained muted as investors waited for the outcome of Sunday's Japanese general election. Also giving investors pause were comments from the People's Bank of China's Governor Zhou Xiaochuan — he warned that excessive optimism could lead to a "Minsky Moment." The Hang Seng dropped on the comments. A Minsky Moment, named after the late economist Hyman Minsky, is a sudden collapse of asset prices after a long period of growth, sparked by debt or currency pressures.


According to PBoC governor Zhou Xiaochuan, the country will fend off risks from excessive optimism that could lead to a Minsky Moment. He added that corporate debt levels are relatively high and household debt is rising too quickly. Zhou's warnings of potential risks facing China contrasted with the rosier views of most Chinese officials. Zhou was speaking on the sidelines of China's 19th Communist Party Congress. China will control risks from sudden adjustments to asset bubbles and will seriously deal with disguised debt of local government financing vehicles, Zhou said. Still, China's overall debt levels could decline as long as authorities keep a tight control on credit. Worries about a rapid build-up in China's debt prompted S&P Global Ratings to cut China's sovereign credit rating last month, following a cut by Moody's in May.


President Xi Jinping said that China will deepen economic and financial reforms and further open its markets to foreign investors as it looks to move from high-speed to high-quality growth. China will push ahead with market-oriented reforms of its foreign exchange rate as well as its financial system and let the market play a decisive role in the allocation of resources, Xi said at the opening of a key, twice-a-decade Communist Party Congress. However, while expressing support for market reform and private firms, Xi also called for stronger, bigger state firms. Xi's comments reiterated a long-standing pledge by party leaders to give a greater role to free market forces to improve efficiency and put the economy on a more sustainable growth path. Beijing's campaign to rein in high debt levels and industrial overcapacity will continue as part of supply-side structural reforms. Xi also proposed a goal of developing China into a "basically" modernized, innovation-driven country by 2035 and a modern "strong power" by 2050.


In its latest data releases, China's third quarter gross domestic product was up 6.8 percent when compared with the same quarter a year ago after increasing 6.9 percent in the second quarter. But industrial production and retail sales advanced more than anticipated. 


Japan's election

Japanese equities were up for the 14th consecutive session Friday to post their longest winning streak since January 1961. The Nikkei climbed, supported by hopes that Japanese Prime Minister Shinzo Abe's ruling coalition will win the general election on Sunday (October 22). Traders said that the market is prone to profit-taking before the election, but the weaker yen, which helps export competitiveness, raised investors' risk appetite Friday.


Prime Minister Shinzo Abe called for a snap election in September, saying he was seeking a fresh mandate to overcome "a national crisis" amid rising threats from North Korea. His decision came at a time when his approval rating had just rebounded from a record low over the summer, and with the political opposition largely in disarray. Incumbent Shinzo Abe from the Liberal Democratic Party (LDP) is campaigning on a tough stance on security and North Korea and on social policies at home. He is also backing a full return to nuclear power, a policy that has been unpopular in the wake of the 2011 Fukushima disaster.


Traditionally, the main challenger to the LDP would have been the Democratic Party but the party went through a tumultuous leadership struggle in July and in late September entirely fell apart. Its former members are now running as independent candidates or for other small parties, the most notable one being the Constitutional Democratic Party of Japan formed only earlier this month. Mr Abe faces a new challenge from a former LDP cabinet member and current Tokyo Governor Yuriko Koike, who in September launched a new national party — Party of Hope. Yet the initial strong public support faltered, in part because Ms Koike decided not to run herself and because there was little time to prepare its election campaign. The past weeks' polls have consistently shown Mr Abe in the lead. Latest numbers see his LDP taking around 300 of the lower house's 465 seats.


New Zealand's election

New Zealand's election stalemate ended when the opposition Labour Party led by Jacinda Arden formed a coalition with New Zealand First, led by Winston Peters. The Labour Party won 46 seats in the national election and, with the 9 seats won by New Zealand First and 8 seats won by the Green Party, has been able to secure a workable majority in the 120-seat parliament. The incumbent National Party led by Bill English won 56 seats.


The change in government is likely to result in a push to make changes to New Zealand's monetary policy framework. The Reserve Bank of New Zealand currently sets policy to meet an inflation target of 1 percent to 3 percent. Interest rate decisions are made by the RBNZ's Governor following consultation with internal staff. No minutes are published. The Labour Party, however, proposes that employment should also be a factor used to guide policy. It also says that monetary policy decisions should be made by committee rather than just the governor and should include external members. Minutes of committee meetings should be published as in other countries.



The U.S. dollar advanced against all of its major counterparts including the yen, euro, pound sterling, Swiss franc and the Canadian and Australian dollars. A reason for the dollar's rally was the progress of tax legislation through the House of Representatives and Senate. Economic data did not provide a boost — many indicators were somewhat affected by Hurricane's Harvey and Irma. The currency markets are also watching the Federal Reserve closely as the time nears for the administration to appoint the Fed's chair beginning in February 2018. The President has said he will make his decision before he leaves on a trip to Asia on November 3.


Selected currencies — weekly results

2016 2017 % Change
Dec 30 Oct 13 Oct 20 Week 2017
U.S. $ per currency
Australia A$ 0.7215 0.789 0.782 -0.9% 8.3%
New Zealand NZ$ 0.6948 0.719 0.696 -3.1% 0.2%
Canada C$ 0.7443 0.801 0.793 -1.1% 6.5%
Eurozone euro (€) 1.0534 1.182 1.178 -0.4% 11.8%
UK pound sterling (£) 1.2333 1.329 1.319 -0.8% 6.9%
Currency per U.S. $
China yuan 6.9450 6.580 6.621 -0.6% 4.9%
Hong Kong HK$* 7.7533 7.808 7.802 0.1% -0.6%
India rupee 67.9238 64.928 65.039 -0.2% 4.4%
Japan yen 116.8100 111.870 113.460 -1.4% 3.0%
Malaysia ringgit 4.4862 4.222 4.225 -0.1% 6.2%
Singapore Singapore $ 1.4465 1.350 1.361 -0.8% 6.3%
South Korea won 1205.8300 1128.950 1131.360 -0.2% 6.6%
Taiwan Taiwan $ 32.3260 30.141 30.250 -0.4% 6.9%
Thailand baht 35.8100 33.061 33.195 -0.4% 7.9%
Switzerland Swiss franc 1.0174 0.9741 0.985 -1.1% 3.3%
*Pegged to U.S. dollar
Source: Bloomberg


Indicator scoreboard


Final September HICP was up 1.5 percent on the year. On the month, prices were up 0.4 percent. There were also no revisions to core inflation. Compared with its final August print, the narrowest measure which excludes energy, food, alcohol & tobacco still shows a 0.1 percentage point dip in its yearly rate to 1.1 percent while both the other gauges were flat at 1.3 percent. Non-energy industrial goods inflation was (again) unchanged at 0.5 percent and the service sector rate a tick softer at 1.5 percent.


United Kingdom

September consumer prices were up a monthly 0.3 percent and were 3.0 percent higher when compared with a year ago, the first time this level has been touched since April 2012. The monthly change in the annual rate was partly due to food where prices were up 0.8 percent from August compared with a 0.4 percent fall over the same period in 2016. Recreation & culture (0.8 percent after 0.1 percent) also had a significant impact as did air fares where a seasonal decline had a smaller impact than usual due to a reduction in the category's share of the CPI basket. Eight of the 12 main components had a negative impact but individually their effects were small.


September claimant count joblessness rose 1,700 following a smaller revised 200 decline in August. This left the unemployment rate steady at 2.3 percent, its sixth consecutive month at this level. The lagging ILO data showed the number of people out of work falling a further 52,000 in the three months to August. The unemployment rate was unchanged at 4.3 percent — its lowest mark since the June quarter of 1975. Employment over the same period was up 94,000, but this was short of the 181,000 increase in May-July and a small enough gain to reduce the employment rate from a record 75.3 percent to 73.1 percent. Average weekly earnings in the three months ended August grew at a 2.2 percent yearly rate. Excluding bonuses, the rate dipped from 2.2 percent to 2.1 percent. As a result, average regular real earnings fell 0.4 percent on the year.


September retail sales dropped a monthly 0.8 percent in volumes — the steepest since March. Following a downwardly revised 0.9 percent gain in August, annual sales growth was reduced by more than a full percentage point to 1.2 percent. Excluding auto fuel, sales were down 0.7 percent and up 1.6 percent on the year after gaining 2.6 percent the month before. Excluding auto fuel, non-food purchases tumbled a hefty 1.5 percent from August, their sharpest decrease in four months. Within this, other stores (minus 6.3 percent) had a particularly bad month and non-specialized stores (minus 1.1 percent) also struggled. However, household goods (3.0 percent) and non-store retailing (2.3 percent) performed very well and clothing & footwear (0.9 percent) also advanced. Elsewhere, food sales were off 0.6 percent and auto fuel 1.6 percent.




Japan's merchandise trade surplus widened from ¥113 billion in August to ¥670 billion in September. The value of exports increased 14.1 percent on the year, slowing from 18.1 percent in August. Imports advanced 12.0 percent on the year, down from 15.2 percent in August. The value of Japan's exports to other Asian countries rose 18.7 percent in September, down from 19.9 percent in August, while year-on-year growth in imports decelerated from 13.7 percent to 7.7 percent. The decline in exports growth also reflected weaker demand from the United States and Europe. Exports to the United States were up 10.1 percent on the year, down from 21.8 percent in August, while with the European Union, exports slowed from 13.7 percent to 11.5 percent.



September employment increased 19,800, down from the revised increase of 53,000 recorded in August. Australia has now recorded 12 consecutive months of employment growth. The unemployment rate eased from 5.6 percent in August to 5.5 percent while the participation rate was steady at 65.2 percent. The increase in employment was driven mainly by part-time jobs, which increased by 13,700 persons after a similar increase of 13,600 persons in August. Full-time employment also increased by 6,100, well down from an increase of 39,500 in July. The total number of hours worked increased by 0.7 percent. Over the last 12 months, full-time employment has increased 315,900 persons while part-time employment has increased 55,600 persons.



September consumer price index increased 1.6 percent on the year, down from 1.8 percent in August. The index rose a monthly 0.5 percent after an increase of 0.4 percent in August. Urban inflation moderated from a yearly 1.9 percent to 1.7 percent in September, while rural inflation eased from 1.5 percent to 1.4 percent. Weaker headline inflation in September was mainly driven by food prices, which declined by 1.4 percent on the year after declining by 0.2 percent in August. Non-food prices increased slightly from 2.3 percent in August to 2.4 percent in September, their highest level since April. Within the non-food category, price gains were stronger for housing and health care but weaker for transportation and communication.


September producer price index increased 6.9 percent on the year, up from 6.3 percent in August. This is the second consecutive increase in headline PPI inflation and takes it to its strongest level since March. The index rose 1.0 percent on the month after an increase of 0.9 percent in August. The increase in headline PPI inflation was broad-based. Prices for production materials rose 9.1 percent on the year, up from 8.3 percent in August, while the annual increase in fuel and power costs accelerated from 7.7 percent to 8.5 percent. Prices for consumer goods also increased at a slightly faster pace, up 0.7 percent after an increase of 0.6 percent in August.


Third quarter gross domestic product was up 6.8 percent when compared with the same quarter a year earlier. GDP was up 1.7 percent on the quarter, unchanged from the increase recorded in the three months to June. The data continued the recent pattern of stability in Chinese economic growth data, with the year-on-year change in GDP between 6.7 percent and 7.0 percent in every quarter since the start of 2015.




September consumer prices were up a monthly 0.2 percent. The CPI was up 1.6 percent from the same month a year ago following a 1.4 percent gain in August. Excluding food and energy, the CPI was up 0.2 percent and 1.2 percent on the year. Excluding just gasoline, the index rose 1.1 percent on the year for a third month. With a Bank of Canada policy meeting looming (October 25), the inflation measure is getting close scrutiny. The BoC now sees inflation rising for a third month. Prices were up in six of the eight major CPI components in the 12 months to September, with the transportation and shelter indexes contributing the most to the increase rise. The clothing & footwear and household operations, furnishings & equipment both declined on the year. On a seasonally adjusted monthly basis, the CPI increased 0.2 percent in September, matching the gain in August. Five major components increased while three decreased. On a seasonally adjusted monthly basis, the transportation posted the largest gain, while the clothing and footwear index posted the largest decline.


August retail sales surprised and declined a monthly 0.3 percent after increasing 0.4 percent in July. Sales were down in 8 of 11 subsectors, representing 57 percent of retail trade. On the year, sales were up 6.9 percent. Lower monthly sales at food & beverage stores more than offset higher sales at gasoline stations and motor vehicle & parts dealers. Excluding the latter two subsectors, retail sales tumbled 1.3 percent. Following four consecutive monthly increases, sales at food & beverage stores declined in August. The decrease was largely attributable to lower sales at supermarkets and other grocery stores (-2.8 percent). Sales at specialty food stores were up for the third month in a row. Sales were down at store types traditionally associated with housing purchases and home renovation. Sales at building material & garden equipment & supplies dealers and furniture & home furnishings stores declined for the second consecutive month. Gasoline stations posted their first sales gain in four months, largely reflecting higher prices at the pump. Motor vehicle & parts dealers' sales increased 0.7 percent, attributable to higher sales at new car dealers and, to a lesser extent, used car dealers. Sales at clothing & clothing accessories stores continued their upward trend in August.


Bottom line

Equity indexes were mixed for the week as investors weighed earnings reports. Also fighting for attention were the upcoming national election in Japan and the ongoing party congress in China. And in Europe, the ongoing Brexit negotiations got a nod along with the situation in Spain. There was little volatility in trading.


A series of central bank policy meetings begin this week with the Bank of Canada and the European Central Bank. The Bank of Canada is expected to pause in its interest rate increases this time around. The BoC increased rates by 25 basis points at its July 12 and September 6 policy meetings. Its current policy rate is 1.0 percent. The BoC will also publish its Monetary Policy Report. The ECB is expected to announce a recalibration of its asset purchase program. The pace of new economic information will pick up. Among the many releases is the October flash composite PMIs. Third quarter preliminary gross domestic product data for the UK and US also will be released.


Looking Ahead: October 23 through October 27, 2017

Central Bank activities
Oct 25 Canada Bank of Canada Monetary Policy Decision and Report
Oct 26 Eurozone European Central Bank Monetary Policy Decision
The following indicators will be released this week...
Oct 23 Eurozone EC Consumer Confidence (October flash)
Oct 24 Eurozone Manufacturing, Services & Composite PMI (October flash)
Germany Manufacturing, Services & Composite PMI (October flash)
France Manufacturing, Services & Composite PMI (October flash)
Oct 25 Germany Ifo Survey (October)
Oct 26 Eurozone M3 Money Supply (September)
Asia Pacific
Oct 24 Japan Manufacturing PMI (October flash)
Oct 25 Australia Consumer Price Index (Q3.2017)
Oct 27 Australia Producer Price Index (Q3.2017)
Japan Consumer Price Index (September)


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