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Reacting to nothing

| Posted by: Paul Donovan | Tags: Paul Donovan

  • The US ISM opinion poll of manufacturing was strong, and equity markets reacted positively. The US ISM opinion poll of manufacturing has had a negative correlation with actual manufacturing output since 2010. The employment subcomponent has had a negative correlation with actual manufacturing employment over the same period.
  • The US White House has said that, amidst rising military tensions with a backdrop of nuclear threats, now is clearly not the time to talk to North Korea. Markets are unlikely to price in a disaster scenario for Korea, but if attention turns to sanctions against China over Korea, markets will probably price that risk.
  • Euro area producer price inflation is due. Producer prices give a better indication of corporate pricing power than consumer price inflation. The impact of energy prices will help to raise the headline rate.
  • The European Central Bank's Praet was sounding cautious about the scaling back of quantitative policy in the Euro area in 2018. It is, however, becoming harder and harder to justify quantitative policy accommodation of any sort at a time of normal inflation, strengthening labor markets and above-trend growth.