Night of Surprises and Omens
April 5, 2011
The People’s Bank of China has implemented a fourth increase of its lending and deposit rates, lifting such in an unexpected move by 25 basis points to 6.31% and 3.25%. Prior increases were done in October, December and January. There have also been nine advances so far of the central bank’s reserve requirements, most recently by 50 basis points to 20% on March 18th.
Moody’s again downgraded Portuguese debt, this time by one step to Baa1. The outlook was left at negative by the credit rating agency.
Former Saudi oil minister Ahmed Zaki Yamani from 1962 to 1986 warned that oil prices could spike to a $200-$300 per barrel range if social unrest persists in the Middle East and North Africa, and that forecast prompted a large European bank to suggest that European share prices would plunge over 25% it that were to happen.
The British service sector purchasing managers index jumped to 57.1 in March from 52.8 in February. The survey showed jobs rising for the first time in nine months and reflected intensifying cost pressures, all of which raise the likelihood of a sooner rather than later rate hike by the Bank of England. Sterling was lifted in response, and the ten-year British gilt yield firmed three basis points to 3.75%.
Australia reported a significantly weaker service sector purchasing managers survey for March and an even more surprising swing of the trade balance to a deficit of 205 million Aussie dollars in February from January’s surplus of AUD 1.433 billion and December’s AUD 1.778 billion surplus. Exports fell 2.0% on month, while imports rose 5%.
The dollar fell 0.7% against sterling but rose by 0.6% versus the Australian dollar and 0.3% against the yen and euro. The dollar is unchanged against the Canadian dollar, Swiss franc and Chinese yuan, and it ha dipped 0.1% against the kiwi.
Several Asian market centers including in China were closed for the Qingming Festival, which commemorates rising spring temperatures and rainfall. Chinese central bank authorities often chose holidays to announce policy changes.
Japan’s Nikkei fell by 1.1%. Share prices fell 0.4% in Indonesia and by 0.2% in Malaysia and Thailand. Equities in France, Germany and Britain are trading 0.6%, 0.4%, and 0.3% weaker. The ten-year JGB yield is two basis points lower at 1.28%. German bund yields are steady.
Contrary to the Yamani remarks about a possible major additional rise in oil prices, such have eased by 0.6% to $107.82 per barrel. Gold is steady at $1433.10 per ounce.
Service sector purchasing manager survey results for March were released covering many economies.
- Australia’s index fell 2.2 points to 46.5, the fifth sub-50 reading in a row and the sixth in seven months. Sub-50 scores indicate contracting activity.
- Japan’s PMI plunged to 35.3, worst since April 2009, from 49.8 in February and 50.4 in January. March saw a record month-on-month deterioration. The result leaves no doubt that GDP fell last quarter probably by more than 2.0% at an annualized rate.
- The euro zone final service sector PMI reading was 0.3 points higher than the preliminary indication reported March 24 and compares to 56.8 in February, 55.9 in January and 54.2 in December. The disparity widened between high-flying Germany and France on the one hand and every other member of the common currency area on the other, and input price inflation in the region hit its highest point since August 2008. The 57.2 PMI score was the best since August 2007 and was associated with a composite PMI (both services and manufacturing) of 57.6, which lay between February’s 58.2 and January’s reading of 57.0.
- Germany recorded composite and service sector PMI readings of 60.4 and 60.1 in March. The services score was just 0.2 points below January’s 4-1/2 year peak of 60.3, but new business grew more slowly than in February.
- The French services index of 60.4 was even better than Germany’s in March, and France’s composite index of 59.1 constituted a 7-month high.
- The Italian PMI in services of 53.3 was 0.2 above the February level, but that increase reflected shrinking order backlogs and masked a slowdown in the growth of new orders. Worse, business sentiment was at its weakest point since April 2009.
- Spain’s services index slid back below 50 to 48.7 in March from 50.8 in February. February was the only month since July to show expanding activity, that is to have a reading of more than 50.0.
- Ireland’s 51.1 score in March was sharply below February’s 55.1, indicating a near-stall in its rate of service-sector growth.
- Sweden’s services PMI slid again but remained above 60 at 61.2 after 62.4 in February, 65.9 in January, and 66 in December.
- India’s PMI dipped a full point to 60.0 in March. That’s still reflects very dynamic activity but unfortunately was associated with the highest rate of output price inflation since July 2008.
- Service sector growth remained lackluster in Russia, with a score of 53.3. Manufacturing has been much more vibrant, and the hope is that the strength of the factory sector will in time spread more clearly into the rest of Russia’s economy.
- The United Arab Emirates posted a service sector PMI of 54.7. Although up 0.4 and at a record high, one has to wonder if it’s a matter of time before unrest in the region depresses service sector activity.
The Reserve Bank of Australia as expected left its Official Cash Rate unchanged at 4.75%, calling the current stance “mildly restrictive” and “appropriate” while predicting that inflation over the coming year would be consistent with the 2-3% target range.
Retail sales volume in the euro area slid 0.1% in February, was unchanged in January-February from the 4Q10 level, and was just 0.1% higher than a year earlier. Sales fell by 1.1% in France, 0.8% in Belgium, 0.4% in Finland, and 0.3% in Germany and Spain in the latest month. All in all, retail activity continues to sputter.
South African business sentiment improved to a reading of 88.3 last month from 86.4 in February.
Filipino CPI inflation held at a 10-month high of 4.3% in February. Producer prices fell by 0.3% on month and by 1.4% on year. Malaysia recorded a MYR 12.6 billion trade surplus in February, about 30% larger than expected.
U.S. service sector purchasing manager survey data are due at 10:00 local time. FOMC minutes also get released today, and Kocherlakota, Lockhart, and Plosser and senior Fed officials with speaking engagements this Tuesday. Weekly chain store sales figures also get released.
Copyright Larry Greenberg 2011. All rights reserved. No secondary distribution without express permission.
Tags: Service PMIs, Yamani
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