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Politics, Not Economics, Continue to Sway Market's Direction

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Wednesday, 12 December 2018 10:52 AM Current | Bio | Archive

Politics Set the Tone For the Markets

Once again, it’s politics and not economics that set the tone for the markets today.

President Donald Trump sounded upbeat on trade yesterday.

As trade tariffs are the personal remit of the president and as trade tariffs are probably the main cause of the equity market weakness of late, the fact that the president suggested it might be possible to meet the Chinese president has also led to strength in Asian equity markets overnight.

Markets turned positive after Trump said talks between Washington and Beijing were ongoing and confirmed he would not raise tariffs on Chinese imports until he was sure about a comprehensive trade agreement.

And then, the Chinese announcing they were lowering their tariffs on U.S.-made car imports from 40 percent to 15 percent that originally were put in place in retaliation on U.S. tariffs on Chinese imports also caused positive reactions in the markets, the South China Morning Post reported.

U.S. Consumer Price Index (CPI)

The Consumer Price Index was unchanged in November on a seasonally adjusted basis after rising 0.3 percent in October. Over the last 12 months the CPI rose 2.2 percent before seasonal adjustment.

The all items less food and energy index increased 0.2 percent m/m in November and 2.2 percent y/y.

Consumer price inflation is not really about “market” prices. Most of the indexes either make up prices, prices are not set by the markets, prices which may not be representative and prices which are adjusted. This is one of the reasons why the Fed doesn’t really focus on consumer price inflation.

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 2.2 percent over the last 12 months.

The CPI data will not upset the Fed.

Brexit - UK Prime Minister Theresa May Faces a Vote of Confidence

Meanwhile, in the United Kingdom in the interminable tedious process of getting the UK out of Europe has led to more political drama.

Now, UK Prime Minister Theresa May faces a vote of confidence of her own Conservative party. 

If the prime pinster wins, which markets seem to expect, the prime minister can be no more challenged by her party for 12 months, which should allow her to continue her “work” that doesn’t mean the “hard” Brexit scenario is off the table, according to BBC reports.

Anyway, for the time being at least, the British pound has stopped falling further

Nevertheless, investors could well keep in mind that the UK is scheduled to leave the European Union (EU) at 11pm UK time on Friday, March 29 next year, and not within 12 months.

Investors might possibly question themselves whether all this is really the best time to be moving ahead with the challenge, but that’s how things work at the UK Parliament.

The news out of the UK Parliament of late has been enough to weaken the British pound for a good part.

The idea being that time spent arguing about who runs the country is time not spent running the country, and if a “hard” exit, which investors really don’t want, is to be avoided, it might be quite useful if someone were to run the country.

Meanwhile, it’s also a fact the British public doesn’t really care too much.

Euro Area Industrial Production

Euro area industrial production (ex-construction) in October saw only its second increase since May. The 0.2 percent monthly rise was short of market expectations and nowhere near large enough to reverse a steeper revised 0.6 percent decline in September.

Nevertheless, October's limited advance put Euro area’s industrial production 0.2 percent above its third quarter average. This raises the chances of the sector making a more positive contribution to fourth quarter GDP growth than the near-zero impact it had in the third quarter.

Now, with new orders having slowed significantly in recent months, near-term prospects do not look particularly bright.

Of course, the problems of the German auto sector did not help today’s data, but that is a distortion that won’t last into 2019.

Anyway, today’s data give a preview on momentum into the end of the year once allowances for the German problems have been made.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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Once again, it’s politics and not economics that set the tone for the markets today.
politics, economics, market, direction, investors
Wednesday, 12 December 2018 10:52 AM
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