Overnight Markets Uneasy

February 21, 2013

Equities dropped 3.4% in China, 2.3% in Australia, 1.7% in Hong Kong, 1.6% in India, 1.4% in Japan, 1.2% in Thailand, and 1.0% in New Zealand.  In Europe, share prices have so far slumped 2.9% in Italy, 1.9% in Germany and France, 1.8% in Spain and 1.7% in Britain.

Bonds were hit in Europe.  The yields on 10-year German bunds and British gilts are five and six basis points lower.

Commodity prices were slammed, too, with oil off 1.5% at $93.79 per barrel and gold sinking by a further 0.6% to $1569.20 per ounce.  Gold is down 6.3% since February 4 and 11.5% since November 20.

The dollar slumped 0.8% overnight against the yen but rose by 0.7% relative to the euro and 0.5% against the Swiss franc.  The buck slid 0.2% against sterling and 0.1% versus the kiwi, but the U.S. currency appreciated 0.2% against the loonie.  It’s unchanged relative to the Australian dollar and Chinese yuan.

Investor confidence was shaken late yesterday when FOMC minutes revealed a contingent of U.S. monetary policymakers questioning the cost/benefit balance of quantitative easing and anxious not to keep expanding the Fed’s balance sheet at the current pace.

In Asia, China’s central bank drained a considerable CNY 910 billion of liquidity in the aftermath of the New Year holiday.  And in Japan, more remarks by Finance Minister Aso seemed to put a wider wedge between him and the more hawkish Prime Minister Abe, creating confusion about just how aggressive Bank of Japan policy is likely to become.  Japanese stock and bond transactions last week resulted in a bigger JPY 1.414 trillion net capital inflow versus an inflow of JPY 826 billion in the week of February 8.  Japanese supermarket sales posted a 4.7% on-year decline in January, three times greater than the drop in December.

The mood of investors was also hurt by worse-than-expected preliminary Ezone purchasing manager survey readings for February.  The overall composite PMI unexpectedly dipped 1.3 points to a 47.3 reading, suggesting that regional GDP will likely contract in the first quarter of 2013.  Such also fell in each of the final three quarters of 2012.  The manufacturing PMI (47.8) and service sector PMI (47.3) were at respective two-month and three-month lows in February.

The polarization of economic trends within Euroland also widened.  Germany’s average composite PMI in January-February of 53.6 suggests positive first-quarter growth of as much as 0.4% not annualized.  Germany’s manufacturing PMI score of 50.1 was the best in twelve months, while a 54.1 reading on services was solid though below January’s 55.7. 

The French composite PMI sank to a 47-month low of 42.3, which indicates a broadening recession in Euroland’s second largest economy and puts France in roughly the same class as the region’s depressed peripheral members.  France’s service-sector PMI score of 42.7 was the worst since February 2009, and the manufacturing score of 43.6 connotes a rapid rate of contraction in that part of the economy as well.

French auctions of 2-, 4- and 5-year notes resulted in higher interest rates.  Spanish auctions went decently, however.

There is mounting nervousness ahead of Italian parliamentary elections this Sunday and Monday.  The return of Berlusconi as an influence on fiscal policy would be calamitous for the euro area’s third largest economy and could destabilize regional financial conditions anew.

Britain released January budget figures.  Public-sector net borrowing of GBP 9.86 billion was larger than the GBP 8.43 billion total a year earlier.  The public-sector net cash requirement (GBP 35.6 billion) was huge as such tends to be each January.  Debt equaled 73.8% of GDP, up from 69.9% in January 2012.

The Confederation of British Industries released its February industrial trends survey, revealing a 6-point improvement to a reading of negative 14 after -20 in January and minus 12 in December.

China’s index of leading economic indicators increased 1.0% in January according to the Conference Board.  The coincident index went up 0.6%, only half as much as in the prior month.  China’s preliminary reading on business sentiment jumped to 61.79 this month from 55.16 in January and 52.23 in December.

Unemployment in Hong Kong ticked a tenth percentage point higher to 3.4% in January.  Malaysian joblessness was also at 3.4% in the latest reported month (December).

The Swiss trade surplus widened to CHF 2.13 billion in January from CHF 0.9 billion in December, as exports climbed 3.7% while imports dipped 0.5%.  Swiss M3 money growth slowed to a 12-month increase of 9.2% from 9.8% in the year to December.  Dutch consumer confidence weakened nine points to negative 44 in February, defying expectations of modest improvement.  Danish retail sales posted monthly and on-year declines of 0.8% and 1.6% in January.  Irish consumer price inflation held at 1.2% in January, and producer prices in Ireland were 0.4% below year-earlier levels.  Portugal’s EUR 2.56 billion current account deficit in December was 6.8% smaller than in November.

Many U.S. indicators are being released today: consumer prices with annual revisions to seasonals, the Philly Fed manufacturing index, the preliminary Markit estimate of the manufacturing PMI, the Conference Board’s indices of leading and coincident economic indicators, weekly jobless insurance claims, and existing home sales.  St. Louis Fed President Bullard will be speaking.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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