More Risk Aversion

February 20, 2014

Japan’s Nikkei slumped 317 points or 2.2%.  Elsewhere in the Pacific Rim, share prices dropped 1.2% in Hong Kong, 0.9% in India and China, 0.6% in Taiwan and South Korea, and 0.1% in Singapore and New Zealand.  In Europe, Stocks are down 1.0% in Italy, 1.2% in Germany, 0.8% in Spain, 0.7% in Switzerland, 0.5% in France and 0.3% in Britain.

The yen, a currency bellwether of risk aversion, climbed 0.4% against the dollar and even more against European currencies.  The dollar strengthened 0.3% overnight against the euro and Swiss, 0.2% relative to the Australian dollar and sterling and 0.1% versus the yuan.  The dollar is off 0.1% against the kiwi and loonie.

Several emerging market currencies such as the forint, hryvnia, ruble, and rand fell further, hurt by the political unrest in the Ukraine and Thailand.  A truce reached in Kiev looks very precarious.  An IMF warning about risks faced by emerging nations and evidence of a deepening Chinese slowdown also contributed to the risk-averse mood.  Investors are a bit spooked, too, by the revelation in the FOMC minutes that some members would like an interest rate hike later this year.

Gold slipped 0.5% to $1,314.40 per ounce, and WTI oil edged off 0.1% to $103.20 per barrel.

The 10-year Japanese JGB slid another basis point to 0.58% after news of a record trade deficit in that country.  German bunds and British gilt yields are steady.

Japan posted a record JPY 2.79 trillion customs trade deficit in January, up from JPY 1.30 trillion in December and JPY 1.63 trillion in January 2013.  Seasonally adjusted imports rose 4.7% on month, while exports fell by 3.5%.  Japan’s deficit with China soared 59% on year.  Export volumes contracted 0.2% between January 2013 and January 2014.

Japanese stock and bond transactions generated an 855 billion yen net outflow last week, 43% greater than in the prior week.  Japanese supermarket sales posted a 0.2% dip in the year to January.

The purchasing managers index for Chinese manufacturing that is compiled by HSBC printed in February at a contractionary 48.3, down from 49.5 in January and 50.5 in December.  This was the weakest reading since July and below market expectations.

Ezone preliminary PMI scores for February also undershot analyst forecast, albeit to a marginal extent. Most worrisome was a renewed setback in France. The data are consistent with first-quarter GDP growth near 0.5% and led by Germany whose pace could be closer to 0.7%.  Peripheral members of the euro area are doing their best in three years.

  • The composite Euroland PMI dipped 0.2 points to 52.7, a two-month low, but the services PMI for the region improved to a 5-month high of 51.7.  The manufacturing reading was a full point lower at 53.0 after jumping by 1.3 points in January.
  • Germany had a composite PMI of 56.1, which constitutes a 32-month high and exceeds the January score by 0.6 points.  Services (55.4) was at a 3-month high and showed faster growth in both production and demand.  The German manufacturing PMI of 54.7 was below January’s 56.5 but above December’s reading of 54.3.
  • The French composite PMI fell back 1.3 points to 47.6, almost as weak as December’s 47.3.  Even though private business confidence improved to a 9-month peak, the overall services PMI in France dropped two points to 46.9, attesting to a persistently weak domestic private economy.  The manufacturing PMI in France also revealed a faster rate of contraction, dropping further below the 50 threshold to a reading of 48.5 from 49.3.

Producer price inflation slowed in New Zealand last quarter.  The PPI-O index fell 0.4% compared to 3Q and showed a smaller on-year advance of 3.8% versus 4.1% in the year to 3Q.  The PPI-I index fell 0.7% on quarter and record a 2.8% year-over-year advance after 3.3% in the year to 3Q.  Consumer confidence in New Zealand fell 2.1% in February but had risen by 4.9% the month before.

Fourth-quarter GDP growth in Singapore was revised up sharply to an annualized increase of 6.1% from 3Q.  GDP was 5.5% higher than in the final quarter of 2012 and recorded faster calendar year growth of 4.1% versus 1.9% in 2012.

German producer prices unexpectedly dipped 0.1% in January, causing the 12-month rate of decline to balloon to 1.1% from 0.5% in December.  The biggest on-year decline during 2013 was 0.8% in the year to November.  Energy producer prices fell 0.5% in January and by 3.0% from a year earlier.

French CPI inflation held at a sub-1% 0.7% in January.  Irish consumer price inflation was even lower at 0.2%, same as in December.

Italian industrial orders plunged 4.9% in December, cutting their 12-month rate of increase to 1.9%.

Dutch seasonally adjusted unemployment ticked 0.1 of a percentage point higher to 8.6% in January.  Consumer confidence in the Netherlands rose two points to a reading of minus 10 in January.

The Swiss trade surplus of CHF 2.59 billion in January far surpassed expectations and compared to CHF 521 million the month before.

The United States releases a lot of indicators today: consumer prices, jobless insurance claims, the Philly Fed manufacturing index, the Conference Board index of leading economic indicators, and mortgage applications.  The preliminary reading of Ezone consumer confidence arrives today as well.  Tomorrow sees the release of another likely disappointing housing market statistic, existing home sales.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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