Stocks Soften in the Pacific Rim after FOMC and RBNZ Statements

October 31, 2013

Share prices fell 1.4% in China, South Korea and Indonesia.  Japan’s Nikkei lost 1.2% on the final day of October, and equities slipped 0.6% in Singapore and Malaysia, 0.4% in Hong Kong, 0.2% in Taiwan and 0.1% in Australia.  In Europe, the British Ftse and German Dax show losses of 0.5% and 0.2%, while stocks are up 0.5% in Italy and Spain.  The Paris Cac has edged 0.1% firmer.

The dollar has recovered 0.6% against the euro and 0.5% versus the Swiss franc but has also lost 0.3% against the yen, loonie, kiwi and Aussie dollar.  The yuan and sterling are steady.  S&P futures suggest a decline at the U.S. open.

Ten-year British, German, and Japanese sovereign debt yields remain unchanged.

Gold has dropped back 1.0% to $1336.30 per ounce, while WTI crude oil has risen 0.2% to $96.95 per barrel.

The FOMC statement implicitly acknowledged the fall-back in long-term interest rates since its prior meeting by deleting the clause that had said, “the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market.”  Another deletion was the remark from September that “mortgage rates have risen further.”  Because of these changes, many analysts labeled the statement “less dovish.”

The Reserve Bank of New Zealand’s Official Cash Rate was kept at 2.5%, but the accompanying statement suggested a somewhat greater predisposition to get on with the normalization (i.e., uptrend) next year.

The Bank of Japan’s Board kept policy unchanged and released its semi-annual Outlook for Economic Activity and Prices.  Real GDP is projected to climb 2.7% this fiscal year followed by 1.5% each in fiscal 2014 and fiscal 2015.  That’s faster than estimated potential GDP growth of 0.5% per year.  Core inflation (abstracting from the effect of a planned sales tax hike next April) reaches 1.9% in fiscal 2015 after 1.3% next fiscal year.  The monetary base will continue to be expanded by 60-70 trillion yen a year, pinning the overnight money rate target at nearly zero.

Australian private credit grew 0.3% last month and was 3.3% greater than in September 2012.  Aussie export and import prices were 4.2% and 6.2% higher than a year earlier in the third quarter.  Australian building approvals jumped 14.4% in October, a 16-month high, and were 18.6% greater than a year earlier.

New Zealand M3 money growth accelerated to 7.3% in September from a 12-month 6.5% pace in August.  New Zealand business sentiment eased to a 53.2 reading this month from 54.1 in September, and building permits posted advances of 1.5% in September and 1.4% in October.

For a second straight day, the People’s Bank of China injected extra liquidity via reverse repo operations.  By previously refraining from doing so, short-term rates had risen to 4-month highs.

Japan’s manufacturing purchasing managers index climbed 1.7 points to a 41-month high of 54.2.  This was the eighth straight reading above 50.  Japanese housing starts (+19.4% on year) and construction orders (+89.8%) exhibited accelerating advances in September.  Labor cash earnings in Japan were 0.1% greater than a year earlier in September.  In order to hit the BOJ’s 2.0% CPI inflation target, wages will need to show faster growth.

The U.S. budget surplus in September of $75.1 billion was greater than forecast, and the fiscal 2013 deficit of $680 billion constituted a 5-year low.

Britain’s Nationwide house price index posted gains in October of 1.0% from September and 5.8% in on-year terms, up from 5.0%.  The U.K. consumer confidence index, minus 11 in October, was down a point, its first monthly setback in six months.

The German consumer confidence index ticked 0.1 lower to 7.0 in November instead of edging up 0.1 as forecast.

German retail sales also disappointed with a monthly volume drop in September of 0.4% and a 12-month advance of just 0.2%.  Analysts were anticipating a 1% on-year increase.  Sales were also up just 0.2% on year over the first nine months of 2013.

German import and export prices were unchanged between August and September and posted respective 12-month declines of 2.8% and 1.0%.  Energy import prices slumped 6.3% on year, while other import prices dropped by 2.3%.

Euroland’s jobless rate remained steady at 12.2% in September, but the youth jobless rate edged higher to 24.1% from 24.0% in August.

The preliminary Ezone consumer price inflation rate decline to a sub-1% rate of 0.7% in October from 1.1% in September, 1.6% in July, and 2.5% in October 2012.  Core CPI rose 0.8% on year, and non-energy industrialized goods were only 0.4% higher on year.

French consumer spending slid 0.1% on month and on year in October, underperforming expectations.  French producer price deflation doubled to minus 0.8% in September.

Italian CPI inflation slowed to 0.7% in October from 0.9% the month before.  Producer prices were unchanged on month and 1.8% lower on year in Italy for September.  Finally, Italy’s jobless rate of 12.5% last month constituted a record high.  Producer prices in Cyprus fell 0.6% in the year to September.

Greek retail sales volume was 7.8% lower than a year before in August.  Ireland had 13.2% unemployment in October.  Belgian unemployment inched up to 8.9%, while the Danish jobless rate stayed at 5.7% in September.  Spanish business sentiment fell two points to negative 14.

South African producer price inflation ticked a tenth lower to 6.7% in September.  The Turkish trade deficit widened $500 million to $7.5 billion in September.

U.S. jobless insurance claims fell by 10K to an as-expected 340K last week, but its 4-week moving average rose 8K to 356-1/4K.  Continuing claims climbed 31K to 2.881 million in the week of October 19.

A 0.6% monthly rise of Canadian GDP in July was followed by a 0.3% increase in August.  GDP growth also rose on a 12-month basis, reaching 2.0% after 1.4% in the year to July.  Industrial production posted a 0.5% monthly advance in August.

The Chicago and Milwaukee PMIs are due later.

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

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