Overseas Headlines: November 22, 2018

Date: November 22, 2018

United States:

Weak Investment Leads Signs of Cooling Momentum in U.S. Economy

Weaker-than-projected reports Wednesday on business investment, consumer confidence and the job market signaled the U.S. economy is shifting into a lower gear, leaving less cheer as Americans head into the Thanksgiving holiday weekend. Orders placed with U.S. factories for business equipment were little changed in October, missing forecasts for a third month, Commerce Department figures showed. An index of consumer sentiment fell to a three-month low in November, according to a University of Michigan survey, while the Labor Department said filings for unemployment benefits rose last week to the highest level since late June. While another report showed sales of previously owned homes advanced in October, it was the first increase in seven months, a reminder that housing also may have peaked amid rising borrowing costs and high prices. With stocks erasing the year’s gains, the boost from tax cuts possibly ebbing and President Donald Trump’s trade war set to escalate, the latest data collectively point to a moderation in economic growth this quarter — and beyond, if the weakness persists.



ECB Waits for 2021 Projections While Noting Economic Fragilities

European Central Bank officials acknowledged “uncertainties and fragilities” affecting the economy at their latest policy meeting, while agreeing that they weren’t enough to weaken confidence that the euro zone’s domestic strength will prevail. “It needed to be emphasized that the incoming data, while somewhat weaker than expected, remained overall consistent with with an ongoing broad-based expansion,” the ECB said in the record of its Oct. 24-25 policy meeting published Thursday. New forecasts in December — which will include an outlook for 2021 for the first — “would provide an occasion for a more in-depth assessment.”


Italy’s Weak Bond Sale Is Followed by Another Debt-Market Rally

Institutional investors offered little reassurance to Italy’s leaders after a sale of inflation-linked bonds received the second-lowest orders on record. Orders for the issuance totaled 2.16 billion euros ($2.46 billion), well short of analysts’ estimates of as much as 8 billion euros ahead of the offering. Still, bonds traded in the secondary market rallied after Deputy Prime Minister Luigi Di Maio indicated that he sees room for dialogue on the nation’s budget plans that are in breach of the European Union’s spending rules. The outcome of the sale is likely to worry Italy’s fledgling coalition at a time when the government wants to increase spending to boost growth. “There isn’t any reason to be buying BTPs if you don’t have to,” said Richard Kelly, head of global strategy at Toronto-Dominion Bank in London. “Demand is likely to remain OK but not great unless we actually see the government revising their budget in a way to placate markets and bring in spreads.”



China’s Warning to Market Economists: Toe the Party’s Line

China’s Communist Party, beset by slowing growth, a trade war and a weak stock market, is taking steps to ensure that those who predict the economy’s direction for a living take the state’s interests into account. In early November, Liu Shiyu, the head of the securities regulator, met in Beijing with representatives from more than 30 brokerages and fund firms. His message, according to people with knowledge of the matter: Economists should strive for higher-level thinking and take into account the interests of the Party and the country when publishing research, so as not to mislead market participants. Liu stopped short of urging economists to censor their research, the people said. Then, in an announcement late Friday, the Securities Association of China said senior economists from brokerages and fund companies had signed a “Chief Economist Self-Discipline Proposal” — essentially a more formalized version of Liu’s admonition. The association didn’t name the companies. The actions by the China Securities Regulatory Commission suggest that even as the country opens its securities markets more to foreign players, Beijing remains keen to manage perceptions of its economy. Leaders’ tolerance for bearish research may be tested further in coming months as mounting trade tensions with the U.S. start to bite.