“The Attack in New York…..”

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The Attack in New York

At least eight people were killed and several more were seriously injured when a suspected terrorist ploughed a truck down a bicycle path in lower Manhattan blocks from the site of the World Trade Center before an officer shot and arrested him.  New York remained under heightened security Tuesday night with armed police deployed at transit stations and in front of iconic buildings.  The foreign minister of Argentina said that five of its citizens were killed in the attack.  The law enforcement official identified the driver as 29 year old Sayfullo Habibullaevic Saipov.  He was shot in the abdomen by police after jumping out of the truck with a gun which turned out to be a fake gun in each hand and was shouting “Allahu Akbar”.  He underwent surgery and was in a critical condition but he is expected to survive.  According to the New York Times, Saipov entered the US in 2010 and handwritten notes were found in Arabic near his truck indicating his alliance to Islamic State.  On twitter President Donald Trump said that he gave instructions to the Department of Homeland Security to bolster the vetting of immigrants coming in the US.  However, it was unclear what specifically he was ordering the agency to do.

US Economy

The Commerce Department in the US said on Monday that consumer spending which accounts for more than two-thirds of the US economic activity, jumped 1 percent.  This was the largest increase since August 2009 which also included a boost from higher household spending on utilities.  The data was included in Friday’s third quarter gross domestic product which showed consumer spending growth slowing to a 2.4 percent annualized rate after a robust 3.3 percent pace in the second quarter.  The moderation in consumption was offset by a rise in inventory investment, business spending on equipment and a drop in imports, which left the economy growing at a 3 percent rate in the third quarter.  The Department further added that data for September reflected the effects of Hurricanes Harvey and Irma, however, the impact of the storms on consumer spending and personal income could not be quantified.  The Federal Reserve preferred inflation measure, PCE (Personal consumption Expenditures Price Index) excluding food and energy edged up 0.1 percent in September and  increased by 0.1 percent for five straight months.

US – Trump’s visit to Asia

Trump will start his 11 day trip to Asia on Friday.  This will be his first to Asia since he has been President of the United States.  Trade and security issues in particular North Korea will probably be on the agenda.

US – Trump replaces Janet Yellen with Powell

President Donald Trump on Thursday confirmed Jerome Powell as Fed Chair.  Trump’s choice is a 64 year old former private equity executive who is in favour of continuous gradual interest rate increases and agrees with the White House calls to ease financial regulations.     He is a republican who was appointed to the FED in 2012 by Barak Obama.  He is known as a non-ideological and pragmatic policy maker.  Although he did not play a prominent role in formulating and explaining monetary policy, he has generally backed the cautious approach undertaken by Janet Yellen to withdrawing stimulus.  Yellen’s four year term will expire on February 3.   Yellen, who is 71, is the first woman to lead the US Central Bank, and is the first Fed Chair since 1979 not to be re-appointed to the job.   The Fed has overseen an economic expansion for its ninth year and unemployment has fallen to a 16 year low.  Powell will have to keep this growth on track.  Trump wants faster increases in Gross Domestic product while continuing with low interest rates.  The change comes at a very critical turning point to a more normal monetary policy after a decade of unprecedented stimulus.

US – Tax Plan

On Thursday the long awaited Republican tax plan was published with the bill estimated to add $1.49 trillion to the budget deficit.  President Trump called on congressional Republicans to pass the tax plan by Thanksgiving.  The plan is designed to cut corporate tax to 20 percent from 35 percent and impose a tax as much as 12 percent on multinational companies’ accumulated offshore earnings.  Furthermore, the tax bill proposed capping the mortgage-interest deduction.

UK – The Bank of England

The BOE increased the key rate to 0.5 percent as policy makers voted 7-2 on Thursday to increase the benchmark rate.  The pound fell 1 percent to around $1.31.  The minutes of their meeting shows the worry that the economy is fragile as the UK gets closer to departing from the European Union.  The dilemma for policy makers is that the underlying price pressures are not arising from stronger demand but from flaws in the economy by Brexit.  The bank kept the forecast for growth and inflation unchanged and sees price increases at 2.2 percent in three years which is slightly above its goal.  These estimates are based on market projections for the key interest rate reaching 1 percent over that period.  Furthermore, officials saw relatively steady growth over the next three years about 1.7 percent.  The forecasts were accompanied by considerable risks to the outlook in particular those arising from Brexit.

Germany

Germany’s annual inflation slowed in October and remained below the European Central Bank’s target.  This supports the decision of the Central bank to withdraw the monetary stimulus slowly.  According to the Federal Statistics Office consumer prices increased by 1.5 percent when compared to the previous year after a rise of 1.8 percent in September, while month on month prices fell by 0.1 percent.  German data also showed that only food inflation had picked up from September while the prices of energy, services and rents grew by less in October than in the previous month.  The German economy grew by 0.7 percent in the quarter between January and March and by 0.6 percent in the second quarter.  The main attributes for the increase were household and state spending as consumers and authorities are reaping the benefits of borrowing costs at low record levels and low unemployment rate.

Spain

The Spanish Prime Minister Mariano Rajoy assumed direct control of Catalonia on Friday hours after the region declared independence in a referendum held on October 1.  It is in Spain’s interest as much as it is for Catalonia to fix the damage to the north eastern region’s economy which accounts for a fifth of the country’s output.  The first step is an election to be held on 21 December which has been called by Rajoy.  The two main separatist parties will take part.  Puigdemont is being represented by Belgian human rights lawyer, Paul Bekaert.  According to a party official Puigdemont will form a government in exile, a move to keep alive hopes of independence among those hard core supporters of independence.  Rajoy with support from other parties in Madrid has used the measures available to him and fired the Catalan leader Puigdemont.  He further seized the government and dissolved parliament.   Puigdemont could serve up to 30 years in jail if he is convicted of rebellion and faces charges of sedition and misuse of funds.

Euro Zone

Data from the European Commission showed that economic sentiment in the Eurozone rose in October for the fifth consecutive month.  It also shows the highest reading since the start of 2001.  Confidence has grown in Germany and Italy while it declined in France. Although uncertainties have surrounded Spain, sentiment has improved with marked rises in the industry and services sector.  However, confidence in the Spain’s retail sector has dropped.  In October optimism in the Eurozone increased in all surveyed economic sectors, climbing to 16.2 points from 15.4 in September in the services sector which is the largest in the Eurozone.  Confidence in the industry grew to 7.9 from 6.7 and the retail sector saw a rise of sentiment to 5.5 from 3.  The improving sentiment in the Eurozone did not extend to Britain and the positive reading for the 19 country bloc with Euro as their currency was only negatively affected by inflation expectations among manufacturers to 8.6 from 10.5 in September.

The Russian Election Probe

 A focus on Special Counsel Robert Mueller is that he is building a case that Donald Trump’s campaign was in close touch with Russian officials who aimed to defeat Hillary Clinton.  This hypothesis starts with a cooperating 30 year old witness, George Papadopoulos, a junior foreign-policy adviser to the Trump campaign who pleaded guilty of lying to the FBI about contacts with Russian operatives.  A filing by Mueller says that at least two high-level Trump campaign supervisors and other officials were aware of George’s contacts and communications with the Russians.

Japan

The Bank of Japan left its massive monetary stimulus program unchanged even as it trimmed its inflation forecasts.   The bank is under little pressure to take additional action even though inflation is well below its 2 percent target rate.  The economy is on track for the longest expansion in 16 years while stocks are the highest level in two decades.

Bitcoin

Bitcoin surged to a record high trading over $6,550 after the world’s biggest exchange CME Group Inc. (a Chicago-based firm) plans to introduce bitcoin futures.  According to a statement, the Chicago based firm which is a giant in trading with futures on the S&P 500, oil and gold wants to introduce the contracts by the end of the year, pending regulatory approval.

Commodities Rally

The price of Nickel headed for the biggest two-day advance in five years with the price increasing as much as 6 percent to $13,030 a metric ton on the London Metal Exchange, the highest since June 2015.  In Shanghai prices increased by the daily limit.  Nickel has increased 29 percent for 2017.  Other commodities that advanced are copper with 1.8 percent to $6,962 a ton.  Aluminium and lead rose more than 2 percent, while lead advanced 1 percent.  Furthermore, oil rose to an eight-month high.  Strong corporate earnings and sales show that economies are experiencing growth that is driving demand for riskier assets.

Release of Earnings

This week the earnings season has picked up amongst those reporting were HSBC Holdings plc, Nomura Holdings Inc., BNP Paribas, and Apple Inc. HSBC holdings plc reported a third-consecutive quarterly increase in revenue on Monday, driven by profits from Asia.  Nomura Holdings Inc.’s profit fell for the first time in three quarters amid a drop in fixed-income trading.   BNP Paribas SA joined a list of banks whose earnings have been dragged down by a slump in trading revenue.  Income from trading bonds, currencies and commodities at the Paris-based lender fell 26 percent from a year earlier.  Apple’s revenue for the September quarter was a record $52.6 billion up 12% over last year.  Revenue growth was generated across all the product categories and all-time record results for the services business.  The company generated a record fourth quarter earnings per share of $2.07 up 24% from a year ago.  The Board of Directors declared a cash dividend of $0.63 per share

Antonella Mercieca

Client Relationship Manager

Source:

Bloomberg, Reuters, New York Times

Date:

November 3rd, 2017


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