Wednesday Morning Cheat Sheet: 3 Stories Moving Markets



Major equity markets in Asia closed Wednesday on a mixed note. All eyes appear to be on China ahead of a meeting of the ruling Communist party, during which an economic agenda is expected to be outlined. The nation’s economy, the second largest in the world, is growing rapidly and some believe at an unhealthy pace. Some observers have expressed concern about the Chinese credit market in particular. In Hong Kong on Wednesday, the Hang Seng closed flat, at 23,039.82, and in Shanghai, the SE Composite fell 0.82 percent to 2,139.61.

Here are three stories to keep an eye on.

1. U.S. Labor Market

The rate of job creation in the United States eased in October, according to the latest data from Gallup. Gallup’s Job Creation Index fell from 21 in September to 19 in October, with government workers at all levels (unsurprisingly) reporting less hiring. Seventeen percent of survey respondents said that their employers are letting people go, while 36 percent said that they are hiring — 41 percent reported no change in their workforce.

2. From the desk of the Bank of Japan

Japan’s central bank released the minutes of its October monetary policy meeting on Tuesday evening. At the meeting, policymakers left the nation’s monetary strategy unchanged, and the minutes show that there is some concern — discussion, at least — about higher inflation expectations. Keep in mind the meeting was held October 3-4.

Money market rates in Japan remain incredibly low while longer-term interest rates have fallen, in part thanks to low U.S. Treasury yields and in part thanks to the BoJ’s purchases of Japanese government bonds. The bank reports that the “Nikkei 225 Stock Average had moved upward, mainly due to the announcement that Tokyo had been chosen to host the 2020 Olympic Games, but declined thereafter, primarily reflecting the yen’s appreciation and the decline in U.S. stock prices.”

Overall economic conditions in Japan appear to be improving. In September, a diffusion index of business conditions turned positive for the first time in nearly six years, public and private fixed investment increased, and labor market conditions (including income) continued to improve.

Separately, a purchasing managers’ index tracking Japanese private sector business activity increased to its highest level in nearly six years. Markit’s Japan Services PMI climbed to 55.3 from 53, indicating accelerating growth in business activity.

Here’s what the BoJ said about the U.S.:

“The U.S. economy had been on a moderate recovery trend against the backdrop of steady private demand, despite downward pressure from the fiscal side. Federal government expenditures had still been declining. On the other hand, private consumption remained on a moderate increasing trend as the employment situation followed an improving trend and asset prices rose. Housing investment continued to generally pick up. Exports were also increasing moderately. Reflecting these developments in demand, business sentiment continued to follow an improving trend, and production as well as business fixed investment were heading toward a pick-up, although the pace remained slow. As for prices, the year-on-year rate of increase in the consumer price index for all items less food and energy, or the core CPI, had been more or less flat. In this situation, the year-on-year rate of increase in the CPI for all items had declined, mainly as a result of the drop in energy prices.”

The Nikkei closed up 0.79 percent at 14,337.31. The yen weakened to 98.6450 against the dollar.

3. The tepid European recovery

Business activity in the eurozone continued to grow at a modest pace in October, according to Markit’s Eurozone Composite PMI. The index did show a deceleration of activity, though, falling to 51.9 from 52.2 in September. The services business activity index declined to 51.6 from 52.2 in September.

Chris Williamson, chief economist at Markit, expressed some concern that the economic recovery in the euro area had lost momentum: “The loss of momentum raises concerns that the upturn is faltering and piles further pressure on the European Central Bank to reinvigorate the recovery, especially as a drop in inflation to a near four-year low of 0.7% — well below the ECB’s target rate of 2.0% — has raised concerns about deflation taking hold.”

A separate report from Eurostat showed that September retail sales fell 0.6 percent on the year in the euro area and by 0.3 percent in the EU28. This compares respective increases of 0.5 and 0.2 percent in August. September’s data bring third-quarter retail sales up to +0.6 percent in the eurozone.

Euro Retail Sales

Source: Eurostat

While it’s still relevant, here’s what the BoJ had to say about Europe (again, at the beginning of October):

“Economic activity in Europe as a whole had bottomed out. While business fixed investment remained on a declining trend, exports had bottomed out. Private consumption had stopped decreasing, with a continued improvement in consumer sentiment, although the employment and income situation remained severe. Reflecting these developments in demand, production had bottomed out. As for prices, while slack in supply and demand conditions had been exerting downward pressure on prices, the year-on-year rate of increase in the Harmonized Index of Consumer Prices (HICP) for all items excluding energy and unprocessed food followed a moderate declining trend. Annual HICP inflation for all items had declined as the year-on-year rate of change in energy prices had turned negative. Meanwhile, economic activity in the United Kingdom was picking up.”

In midday trading, the FTSE 100 was up 0.11 percent; the DAX was up 0.41 percent; the CAC 40 was up 0.88 percent; and the Euronext 100 was up 0.87 percent.

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