Internationally: October 2 - 6, 2017
The September European manufacturing purchasing managers’ index (PMI) was mixed but added up to a healthy aggregate Eurozone manufacturing PMI of 58.1. The UK and Italy was lower compared with August, Spain rose, and Germany and France were both in line with previous figures. The pan-European STOXX 600 and the MSCI EAFE ended the week higher. UK’s FTSE 100 and Germany’s DAX declined.
Despite strong data, rising tensions between the Spanish government and Catalan secessionists cast a shadow over European markets. Catalonia, the wealthy Spanish region that is home to Barcelona, is expected to declare independence from Spain this week. The move comes in the wake of a crackdown by the Spanish central government that was intended to suppress an independence referendum. Ninety percent of the ballots cast were for independence, with those opposed largely boycotting the vote. Catalonia is not likely to become wholly independent in the near future. Independence requires international community recognition, most importantly, from the European Union, for success. The upcoming declaration may be largely symbolic, and Catalan leaders are likely to accept devolution of powers from Madrid, particularly on fiscal matters, rather than pushing for a complete break. Catalonia pays roughly €10 billion more to the Spanish central government than it receives from Spain in state services. Spain’s main index, the IBEX 35, tumbled in what was one of its worst weeks in two months. Bank shares suffered steep losses following concerns among investors about key lenders headquartered in Catalonia. Banco de Sabadell confirmed that it would move its headquarters out of Catalonia, one of the richest regions in Spain, to Alicante. CaixaBank is also considering relocating, according to news reports.
China’s September manufacturing activity surged, suggesting that Beijing’s efforts at cleaning up its indebted financial system and limiting pollution haven’t yet slowed growth. The official manufacturing PMI rose to a five-year high, beating forecasts and August’s growth pace. The official nonmanufacturing PMI also climbed from last month. The numbers resulted from strong demand, both domestic and overseas. Meanwhile, the Caixin China General Manufacturing PMI, declined from August’s six-month high, lagging forecasts, but was still in expansion of growth.
Headline inflation (CPI) was 0.7% in the 12-month period through August. Core CPI (in Japan, this excludes fresh food prices but includes energy) was 0.7%, meeting expectations and the fastest pace in 2½ years. However, the “core-core” CPI (also excludes energy prices) was unchanged for the year, suggesting that energy prices alone drove the higher readings. Japanese stocks posted good gains. The Nikkei 225 Stock Average is now up 8.3%, the broad-based, large-cap TOPIX Index is ahead 11.1%, and the TOPIX Small Index is up 19.2%, all on a year-to-date basis.
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