Stock markets moved broadly down during the Asian session

September 14, 2016

European Outlook: Stock markets moved broadly down during the Asian session, with Hang Seng and ASX notable exceptions. Japanese markets failed to get a lasting lift (see below) from a report yesterday that the BoJ could delve further into negative interest rate territory and uncertainty over the global interest rate outlook is keeping markets jittery and closed down -0.69% at 16,614. Still, oil prices have moved up from the lows seen in the wake of the EIA forecast of an extended supply glut and the front end WTI future is above USDВВ 45ВВ per barrel. Meanwhile U.S. and U.K. stock futures are moving higher, suggesting that equity markets are trying to recover some of the ground lost since Draghi’s less than dovish presser last week. Bund and Gilt futures continued to decline yesterday with Gilts underperforming ahead of tomorrow’s BoE meeting. Today’s European calendar has the final reading of French and Italian inflation data for August as well as Eurozone production numbers. In the U.K. the focus is on the labour market report, with the claimant count.

US Budget Deficit:ВВ The US Treasury posted a $107.1 bln budget deficit in August, a 66.3% erosion versus the $64.4 bln shortfall a year ago. Much of that was a function of the calendar as spending was pushed into the month. Outlays climbed 23.0% y/y (they dropped 14.8% y/y in 2015), while receipts rose 9.7% y/y (8.5% y/y in 2015). For the 11 months of fiscal 2016, the deficit totals $620.8 bln, up 17.1% y/y versus the -$530 bln for the same period last year.ВВ The FY15 deficit totaled $436 bln.

IMF Director LagardeВВ is panning global growth again noting that it has been too low for too long, with 2016 the 5th consecutive year with world GDP below 3.7% and uneven growth in advanced economies. She argues that central banks have done much of the heavy lifting and fiscal policy needs to play a bigger role in supporting demand. She also encourages the Euro Area to boost productivity by accelerating structural reforms. Nothing really new and her views remain rather grim.

Former Fed Governor Warsh:ВВ Critical of the FOMC in refreshingly blunt comments on Bloomberg TV. He suggested the Fed should talk less and listen more. Somewhat jokingly, he said he’d extend the blackout period to six weeks (the time between FOMC meetings) from the current six days. Instead of talking, officials should spend the time between meetings more closely examining the economy, data, and earnings to better understand what’s happening. He added that Fed members believe the more they talk, the more enlightened the markets become. But he worries so much conflicting talk from the 19 FOMC members is a great way to make a policy mistake. He harkened back to prior days where the Fed actually looked to surprise the markets to get more bang for its buck. Policymakers are “prisoner to market expectations,” he added, which we agree, and which we fear has led them into a misguided policy approach. And he thinks the markets’ preoccupation with Fedspeak is dangerous and unhelpful. Warsh would have started to shrink the balance sheet more than two years ago, as the crisis had ended. He indicated Fed chair Yellen can pretty much get what she wants, she has the “votes in her pocket,” and it seems she wants to maintain a patient approach for now. He’s also worried that Yellen wants to maintain the very bloated balance sheet, according to the gist of her Jackson Hole speech.

Main Macro Events Today ВВ  ВВ  ВВ  ВВ 

UK Earnings & ВВ Unemployment – ВВ No change in the unemployment rate is expected with the rate remaining at 4.9%.ВВ  The claimant count is expected to rise between 1.7- 2.0k and the quarterly earnings figure is expected to fall to 2.1% from 2.4% in August.

US Import & Export Prices –ВВ August trade price data is out today to kick off the month’s price measures. Import prices are expected to decline 0.2% on the month while export prices fall by 0.1%. This compares to a 0.1% import price increase in July and a 0.2% increase in export prices for that month. Trade price data has been depressed for most of the past year as the drop in oil prices has weighed despite some rebounds over the summer.

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