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A positive end to 2017
International Perspective - December 22, 2017
By Anne D. Picker, Chief Economist


International Perspective is taking off for the holidays

and will return on Friday, January 5, 2018.

Happy holidays from all of us at Econoday!


Global Markets

The focus of financial markets was on the progression of the U.S. tax legislation through Congress. Equity indexes idled both prior to the vote and after — with some analysts attributing the lack of movement to the tax legislation already being priced into the markets. It also reflected the upcoming holidays and the looming end of year. Having spent more than a year anticipating the bill, its actual passage proved something of an anticlimax for the markets. Equities were mixed on the week and in December. However, all were positive for 2017.


Only one of the major central banks remained to hold a policy meeting — the Bank of Japan.


Bank of Japan

As universally expected, the Bank of Japan left its monetary policy settings unchanged. The BoJ's short term policy rate for excess reserves remains at minus 0.1 percent while the target level for the long-term 10-year yield remains at around zero percent. The monetary policy board (MPB) voted 8 to 1 in favor of the decision.


The BoJ's policy framework also involves adjustment to the pace of its Japanese government bond purchases in order to keep the 10-year yield close to its target level of zero. The MPB will continue to target purchasing these bonds at an annual rate of ¥80 trillion. The MPB again reaffirmed its commitment to keep expanding the monetary base until the annual increase in the consumer price index (excluding fresh food) exceeds their 2 percent inflation target and stays above this level "in a stable manner". It is currently 0.8 percent.


The BoJ said Japan's economy is "expanding moderately" and is likely to continue with the support of ongoing fiscal and monetary stimulus. However, this stability in the overall view reflects a more positive view about the outlook for household consumption and capital investment, offset by a more negative view on public investment. Improved global conditions are expected to drive further improvement in external demand.


In his post meeting press conference, Bank of Japan Governor Haruhiko Kuroda moved to quell recent market speculation that the central bank will tighten the monetary taps, saying it will continue its monetary easing measures in light of weak inflation. This, even though Japan's gross domestic product registered a seventh consecutive quarter of growth in the July to September quarter. This is the first time in 29 years that an expansion has run so long. What is important is to continue the monetary easing with persistence, creating an environment where a 2 percent inflation target can be achieved and maintained in a stable manner.


Global Stock Market Recap

  2016 2017 % Change
Index Dec 31 Dec 15 Dec 22 Week 2017
Australia All Ordinaries 5719.1 6087.1 6167.31 1.3% 7.8%
Japan Nikkei 225 19114.4 22553.2 22902.76 1.5% 19.8%
Topix 1518.61 1793.47 1829.08 2.0% 20.4%
Hong Kong Hang Seng 22000.6 28848.1 29578.01 2.5% 34.4%
S. Korea Kospi 2026.5 2482.1 2440.54 -1.7% 20.4%
Singapore STI 2880.8 3416.9 3385.71 -0.9% 17.5%
China Shanghai Composite 3103.6 3266.1 3297.06 0.9% 6.2%
India Sensex 30 26626.5 33462.97 33940.30 1.4% 27.5%
Indonesia Jakarta Composite 5296.7 6119.4 6221.01 1.7% 17.5%
Malaysia KLCI 1641.7 1753.1 1760.24 0.4% 7.2%
Philippines PSEi 6840.6 8337.0 8432.31 1.1% 23.3%
Taiwan Taiex 9253.5 10491.4 10537.27 0.4% 13.9%
Thailand SET 1542.9 1717.7 1742.08 1.4% 12.9%
UK FTSE 100 7142.8 7490.6 7592.7 1.4% 6.3%
France CAC 4862.3 5349.3 5364.7 0.3% 10.3%
Germany XETRA DAX 11481.1 13103.6 13072.8 -0.2% 13.9%
Italy FTSE MIB 19234.6 22094.0 22209.1 0.5% 15.5%
Spain IBEX 35 9352.1 10150.4 10182.0 0.3% 8.9%
Sweden OMX Stockholm 30 1517.2 1594.4 1606.3 0.7% 5.9%
Switzerland SMI 8219.9 9394.7 9394.5 0.0% 14.3%
North America
United States Dow 19762.6 24651.74 24754.1 0.4% 25.3%
NASDAQ 5383.1 6936.6 6960.0 0.3% 29.3%
S&P 500 2238.8 2675.8 2683.3 0.3% 19.9%
Canada S&P/TSX Comp. 15287.6 16042.0 16165.3 0.8% 5.7%
Mexico Bolsa 45642.9 48132.9 48387.9 0.6% 6.0%


Europe and the UK

Equities were mostly higher for the week. The exceptions were the DAX (down 0.2 percent) and the SMI (barely down 0.22 point). The FTSE was up 1.4 percent and the CAC added 0.3 percent. Even the IBEX, which tumbled 1.2 percent on Friday after the Catalan vote, managed to increase 0.3 percent for the week. Thin liquidity due to the holidays could have accentuated the reaction. However, with just a holiday shortened trading week left in December, only the FTSE, DAX and SMI are up for the month. All are up for the year 2017.


Thursday's Catalonia regional election failed to produce the unifying vote hoped for by the Spanish government in Madrid. As an attempt to quash the area's drive for secession, the election backfired badly. With a record turnout and almost all of the votes counted, the pro-independence parties comprising Together for Catalonia (JxCat), Republican Left of Catalonia (ERC) and Popular Unity (CUP), looked to be on course to win 70 seats and so just more than the 68 needed to achieve an outright majority.


What happens next is unclear. The separatist leader, Carles Puigdemont, who declared independence after the illegal referendum back in October, has claimed victory. However, he is currently in exile in Brussels and faces arrest should he return to Spain. Internal disagreements mean that the secessionist parties may not be able to form a coalition anyway and, at least for now, Madrid continues to impose direct rule. The Madrid stock market fell quite heavily on the news. Spanish yields will also be hit and spreads against German bunds could widen significantly. The EU Commission is still insisting that the Catalan crisis remains an internal issue for Spain to sort out but that will not prevent the rest of the Eurozone suffering the fallout. Spanish stocks were Europe's best-performing benchmark for much of the year, but political risk has held them back from the broader market's recent rally.


Asia Pacific

Most equities ended the week on a positive note in thin trading volumes prior to the Christmas weekend. Underlying sentiment remained supported by higher commodity prices, encouraging economic reports from the U.S. and passage of the tax reform bill by both houses of Congress. Of the indexes followed here, only the Kospi and STI retreated on the week. The Hang Seng was up 2.5 percent, the Topix was 2.0 percent higher and the Nikkei added 1.5 percent. The Shanghai Composite was up 0.9 percent. Investors here shrugged off the news that voters in Catalonia favored separatists wanting to break away from Spain. The widely expected Bank of Japan monetary policy announcement had no discernible impact on Japanese markets. With a holiday shortened week remaining in December and the year, all indexes followed here were higher.


Chinese stocks rose after Xinhua news agency said the country is committed to maintain economic growth in a reasonable range next year. Earlier in the week, the World Bank raised its forecast for China's growth in 2017, citing rising household incomes and a recovery in global trade. The advances were also aided by optimism that stocks may find support as the year-end approaches and investors will remain optimistic about the prospects for 2018. But the mood was dour when the People's Bank of China increased rates on reverse repurchase agreements, triggering concerns about tight year-end liquidity.



The U.S. dollar tumbled against most of its major counterparts last week. It was down against the euro, pound, Swiss franc and the Canadian and Australian dollars. It gained against the yen. The euro ended the week on a down note after Catalan separatists won a regional election, prompting worries about the possible break-up of the Eurozone's fourth-largest economy.


The pound sterling, and its correlation with the FTSE, has been a major focus for investors since Britain voted to leave the European Union in June 2016. The currency has not recovered from its plunge in 2016, but it has regained some ground in 2017 which in turn has put pressure on British firms that source the bulk of their revenues overseas.


Selected currencies — weekly results

2016 2017 % Change
Dec 30 Dec 15 Dec 22 Week 2017
U.S. $ per currency
Australia A$ 0.7215 0.765 0.772 0.9% 6.9%
New Zealand NZ$ 0.6948 0.699 0.703 0.5% 1.1%
Canada C$ 0.7443 0.777 0.786 1.2% 5.6%
Eurozone euro (€) 1.0534 1.176 1.186 0.9% 12.6%
UK pound sterling (£) 1.2333 1.332 1.336 0.3% 8.4%
Currency per U.S. $
China yuan 6.9450 6.609 6.577 0.5% 5.6%
Hong Kong HK$* 7.7533 7.712 7.817 -1.3% -0.8%
India rupee 67.9238 64.045 64.045 0.0% 6.1%
Japan yen 116.8100 112.560 113.280 -0.6% 3.1%
Malaysia ringgit 4.4862 4.080 4.080 0.0% 10.0%
Singapore Singapore $ 1.4465 1.483 1.344 10.4% 7.7%
South Korea won 1205.8300 1089.260 1079.650 0.9% 11.7%
Taiwan Taiwan $ 32.3260 29.994 29.923 0.2% 8.0%
Thailand baht 35.8100 32.510 32.742 -0.7% 9.4%
Switzerland Swiss franc 1.0174 0.9904 0.990 0.1% 2.8%
*Pegged to U.S. dollar
Source: Bloomberg


Indicator scoreboard


December Ifo survey shows no significant change in business conditions. The headline climate index weighed in at 117.2, a 0.4 point drop from November — its second strongest mark since the Great Recession. The decline reflected a fall in expectations that more than offset an increase in current conditions. The former were off 1.5 points at 109.5, their first decrease in three months. By contrast, current conditions increased 0.9 points to 125.4, their best reading since July. At a sector level, morale was up in construction (18.9 after 17.2) and retail (15.7 after 13.1) but worsened in manufacturing (31.7 after 33.1) and wholesale (22.5 after 25.0). However, all measures were close to their yearly highs.


United Kingdom

The final estimate of third quarter economic growth was an unchanged 0.4 percent quarterly rate but a stronger revised 1.7 percent annual rate, reflecting some positive adjustments to the back data. Household spending was up a quarterly 5 percent, a marked improvement on the previous period's 0.2 percent rate. Gross fixed capital formation was nudged 0.1 percentage point stronger to 0.3 percent with business investment adjusted slightly higher to 0.5 percent. However, the main change within domestic demand was to government final consumption which is now seen declining 0.2 percent after the 0.3 percent gain previously reported. There was also a substantial revision to exports (0.8 percent from minus 0.7 percent) and, to a lesser extent, imports (0.9 from 1.1 percent). This made for a neutral contribution from net external trade although the data here remain less than reliable at best.




November merchandise trade surplus narrowed to ¥113 billion from ¥285 billion in October. Exports increased 16.2 percent on the year while imports advanced 17.2 percent on the year. Export growth was largely driven by stronger demand from the United States. Exports to the U.S. were up 13.0 percent on the year. Exports to elsewhere in Asia also strengthened, up 20.4 percent on the year after increasing 18.9 percent in October, with particularly strong demand from China and most south-east Asian markets. This was partly offset by a drop in year-on-year growth in exports to the European Union from 15.8 percent to 13.3 percent.


New Zealand

Gross domestic product in the three months to September advanced 0.6 percent on the quarter, down from revised growth of 1.0 percent in the three months to June. GDP was up 2.7 percent on the year, down from a revised 2.8 percent in the previous quarter. Slower growth reflects the boost that was provided by a significant increase in foreign visitors for major international sporting events in the previous quarter. The service sector expanded a quarterly 0.6 percent after growing 1.0 percent in the three months. The agriculture, forestry & fishing sector contracted a quarterly 1.0 percent while utilities output was down 1.6 percent on the quarter. Growth in the manufacturing sector was steady at 0.7 percent on the quarter, while output in the mining and construction sectors both rebounded from declines in the three months to June. In expenditure terms, GDP was up 0.9 percent on the quarter, down from a revised 1.4 percent in the three months to June. This decline also largely reflected a drop in tourism with exports of services (such as accommodation and other tourist-related amenities) falling 1.2 percent on the quarter after increasing by 4.9 percent in the previous quarter. Household consumption spending also posted slightly weaker growth, up 0.9 percent on the quarter compared with 1.1 percent previously. Investment spending, however, strengthened in the three months to September, up 1.6 percent on the quarter compared with 0.4 percent previously, while quarterly growth in government spending picked up from 1.3 percent to 2.5 percent.




October retail sales were up a monthly 1.5 percent. On the year, sales were up 6.7 percent. Higher sales at new car dealers were the main contributor to the gain. Excluding sales at motor vehicle and parts dealers, retail sales increased 0.8 percent. Sales were up in 7 of 11 subsectors, representing 79 percent of retail trade. In volume terms, sales were up 1.4 percent. Motor vehicle & parts dealers (3.3 percent) recorded the largest gain in (Canadian) dollar terms across all subsectors. The increase was largely attributable to higher sales at new car dealers (3.9 percent). Used car dealers and automotive parts, accessories & tire stores recorded higher sales. Other motor vehicle dealers were down for the third time in four months. Sales rose at food & beverage stores, largely due to higher sales at beer, wine & liquor stores. Gains were also reported at supermarkets and other grocery stores and convenience stores. Receipts at specialty food stores declined for the first time in five months.


November consumer price index was up 2.1 percent from a year ago following a 1.4 percent increase in October. All-items excluding gasoline index rose 1.5 percent on the year after increasing 1.3 percent in October. Prices were up in seven of the eight major CPI components on the year with the transportation and shelter indexes contributing the most to the increase. The clothing & footwear index declined. Transportation prices rose 5.9 percent from a year ago following a 3.0 percent increase in October. Gasoline prices contributed the most to this acceleration, rising 19.6 percent after increasing 6.5 percent the previous month. The increase was partly attributable to higher crude oil prices in November, as well as a monthly decline one year earlier. The purchase of passenger vehicles index also accelerated to 3.6 percent following a 1.9 percent rise in October. The November increase was partly attributable to the greater availability of new 2018 model year vehicles. The food index rose an annual 1.6 percent following a 1.3 percent increase the month before. On a seasonally adjusted monthly basis, the CPI rose 0.5 percent in November. This was the largest increase since January 2017. Seven major components increased, while the health and personal care declined.


Bottom line

As widely expected, the Bank of Japan kept its monetary policy unchanged but was more optimistic about the economy. The government upgraded its GDP forecast for the current fiscal year ending March 31, 2018 to 1.9 percent from 1.5 percent. In Europe, the Catalan separatists won their regional election leaving the future with Spain in question.


The holiday week will have few new pieces of economic data available. Markets will be closed on Monday and in some countries on Tuesday as well. The major economic news comes from Japan where November data for household spending, retail sales, unemployment, consumer prices and industrial production will be released.


Best wishes for the holidays and 2018 from all of us at Econoday.


Looking Ahead: December 25 through December 29, 2017

The following indicators will be released this week...
Dec 29 Eurozone M3 Money Supply (November)
Asia Pacific
Dec 26 Japan Household Spending (November)
Consumer Price Index (November)
Unemployment Rate (November)
Dec 28 Japan Industrial Production (November)
Retail Sales (November)


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


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