Geopolitical Tensions Intensify Market Fear of Risk

February 27, 2014

Escalating tension within Ukraine between those loyal to Russia and those seeking closer ties with Europe sent the hyrvnia tumbling some 10% to 11.2/USD.  Global financial markets have been infected, with sovereign debt yields and equities falling but the yen and dollar rising.

Stocks in Europe have declined by 1.5% in Germany, 1.3% in Spain, 1.1% in Italy, 1.0% in Switzerland, 0.7% in Britain and 0.8% in France.

Pacific Rim stocks closed mixed, with losses of 0.5% in Australia, 0.3% in Japan, 0.4% in China and 0.2% in New Zealand but gains of 1.7% in Hong Kong, 0.8% in Indonesia, 0.7% in India, 0.5% in Taiwan, 0.4% in South Korea and 0.3% in Singapore.

The ten-year British gilt and German bund yields fell by seven and two basis points.  The 10-year Japanese JGB stayed low at 0.58%.  The ten-year Italian government bond yield plumbed to its lowest level since before the global financial crisis.

Gold firmed 0.5% to $1,332.50 per ounce. Oil dipped 0.2% to $102.38 per barrel.

The Swiss franc touched a 10-month high against the euro, which also fell to a 2-week low versus the dollar.  The dollar is 0.6% and 0.5% weaker vis-a-vis the kiwi and yen, unchanged versus the loonie and Swissie, and up 0.4% relative to the Australian dollar, 0.2% versus the euro and sterling, and 0.1% versus the yuan.  The Chinese currency is at its weakest level in almost three months.

Monetary policy makers as expected increased Brazil’s Selic interest rate by 25 basis points to 10.75%.  There has been a cumulative increase of 350 basis points since April 2013.  Brazil has excessive inflation but also very weak growth.

German import prices, regional consumer prices, and labor statistics were reported.

  • Import prices dipped 0.1% in January, and the 12-month decline was trimmed to 1.1% from 2.3% in December and 2.6% in full-2013.  Export prices slid 0.2% on month and 0.8% on year.
  • CPI inflation in North Rhine Westphalia, Germany’s most populous state, fell to 1.6% in February from 1.7% in January and 1.8% in December.
  • CPI inflation in Saxony fell to 1.2% from 1.4%.  These state data imply that nation inflation moved lower in February.
  • The number of jobless workers dropped 14K in February to a 17-month low of 2.914 million.  The ILO-basis unemployment rate remained at 6.8%.  Employment growth accelerated to 0.7% on year in January from 0.6% in 4Q13 and 0.5% in 3Q13.

Euro area sentiment indicators improved unexpectedly in February.  The economic sentiment index rose 0.2 points to a reading of 101.2.  Such was as low as 89.0 last April and 85.2 in October 2012.  Sentiment in the industrial sector went up by 0.4 points, reversing January’s drop.  The services sentiment gauge climbed to 3.2 from 2.4 in January and 0.4 in December.  Retail sentiment rose 0.5 points, while construction improved 1.3 points.  Consumer confidence worsened a full point, however, to a two-month low.  The business climate index climbed 0.12 points to a 31-month high of 0.37.

Euro area money and credit figures showed scant improvement and remained very weak in January.  M3 posted a 12-month 1.2% rise in January, up from 1.0% in December but still below November’s 1.5%.  In November-January, M3 was 1.2% above the year-earlier level, down from a 1.3% 4Q13-over-4Q12 pace.  Private sector credit contracted 2.2% in the year to January; so did loans to the private sector including a 2.9% decrease in corporate loans.  Mortgage lending was up 0.5% on year, down from a 0.7% increase in December.

Austria’s manufacturing purchasing managers index, the first of several to be reported for Europe, fell to a 4-month low of 53.0 in February from 54.0 in January and 54.3 in November.

French consumer confidence posted a lower-than-forecast reading of 85 in February after a score of 86 in January.

Spanish GDP growth last quarter was revised downward by 0.1 percentage points to 0.2% from 3Q13 and negative 0.2% from the final quarter of 2012.  Housing prices in Spain were 1.8% lower in 4Q13 than a year earlier.

Swiss GDP grew less than assumed in the fourth quarter due to a big drag from net foreign demand as exports fell 1.7% and imports rose 1.5%.  GDP expanded only 0.2% between 3Q and 4Q, cutting the on-year pace to 1.7% from 2.1% in the year to the third quarter.  1.7% was also below the full-2013 growth rate of 2.0%.

Sweden posted a SEK 5.8 billion trade surplus in January, which exceeded December’s SEK 0.5 billion surplus and the surplus of SEK 4.7 billion in January 2013.

Portuguese consumer confidence and business sentiment each strengthened in February, the former by 4.1 points to -32.6 and the latter to -0.6 from -0.8.

In Finland, the volume of retail sales was 1.2% greater in January than a year before.  Icelandic CPI inflation fell a whole percentage point in February to a three-year low of 2.1%.  Producer prices in Hungary were 0.1% lower than a year before in January.

New Zealand recorded a third consecutive monthly trade surplus in January, equal to NZD 306 million. 

But Australian business investment plunged 5.2% between 3Q13 and 4Q13, the biggest drop in 17 quarters.

Japanese stock and bond transactions generated a JPY 618 billion net capital inflow last week versus an inflow of JPY 147 billion the week before.

Producer price inflation in South Africa accelerated to 7.0% in January from 6.5% in December. 

Turkish consumer sentiment understandably took a hit from greater political instability there, falling to 69.2 in February after a January reading of 72.4.

The big event in the U.S. today will be the rescheduled Humphrey Hawkins testimony by Janet Yellen in the senate.  ECB President Draghi also speaks publicly today.  Scheduled U.S. data releases are the K.C. Fed manufacturing index, durable goods orders, and weekly jobless insurance claims.

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

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