Currency Thoughts

Threat of Ukraine War with Russia Unsettles Everything

March 3, 2014

Russian soldiers entered Crimea, and the new Ukraine government in Kiev issued a warning of impending disaster.  Russian President Putin appears undeterred by the protests of U.S. President Obama and EU leaders. 

Russia’s stock market fell over 10%, most since the bleakest days in early 2009.

Gold and oil prices advanced by 1.8% to $1349.20 per ounce and $104.08 per barrel.  With Ukraine a big exporter of grain, wheat futures have dived in contrast.

There’s fear that this jolt of geopolitical danger will be the catalyst to trigger a major reversal in equities.  Share prices are down in Europe by 3.1% in Germany, 2.6% in France and Italy, 2.4% in Spain, 2.0% in Britain and 1.9% in Switzerland.  Around the Pacific Rim, stocks dropped 1.5% in Hong Kong, 1.3% in Japan, 0.8% in South Korea, India, Indonesia and Singapore, 0.5% in China, and 0.4% in Taiwan, New Zealand and Australia.  U.S. futures are lower.

The ten-year British gilt and German bund yields declined by eight and four basis points, while the 10-year Japanese JGB edged a basis point lower to 0.57%.

The ruble and several other emerging market currencies have been battered by the wave of risk aversion.  Russia’s central bank after an unscheduled meeting hiked its key interest rate by 150 basis points from 5.5% to 7.0%.

Some poor Chinese purchasing manager February survey results also weighed on investor sentiment.

• The government-authorized CFLP manufacturing PMI fell 0.3 points to 50.2, lowest since 50.1 last June.
• HSBC’s manufacturing PMI dropped a full point to 48.5, lowest since last July.
• But the CFLP PMI non-manufacturing offered some encouragement, advancing by 1.6 points to a 3-month high of 55.0.

Many other manufacturing PMI survey results for February were published on this first business day of March.

• Britain’s purchasing managers index improved 0.3 points, beating expectations, to a 2-month high of 56.9.
• Euroland scored 53.2, the eighth consecutive reading above the 50 no-change threshold but the first month-to-month slowdown in the rate of expansion since September.  53.2 compares with a preliminary estimate of 53.0 released February 20th.
• Among Ezone members, the results were mixed.  Spain’s PMI, for instance, rose 0.3 points to a 46-month high of 52.5, beating expectations.
• The French PMI of 49.7, though revised down from a flash indication of 48.5, was higher than January’s reading of 49.3 and the best French score since 49.8 in September.
• The Irish and Dutch readings of 52.9 and 55.2 constituted two-month highs.
• Austria’s PMI of 53.0 was at a 4-month low.  Italy’s reading of 52.3 was a 3-month low, and Germany’s 54.2 was a 2-month low although 0.1 above its preliminary indication.
• Russia’s manufacturing PMI score was 48.5 and thus below the 50 expansion-or-contraction divide for a fourth straight month but indicating a slower rate of contraction than seen in December or January.
• South Korea’s PMI fell a whole point to 49.8 and was below 50 for the first time since September.
• Taiwan’s PMI fell back from a 33-month high in January to 54.7 in February.
• The Vietnamese PMI dropped by 1.1 points to 51.0, a 3-month low.
• Indonesia’s PMI declined by 0.5 points to a 3-month low as well of 50.5.
• In spite of the lira’s difficulties, Turkey’s PMI rose by 0.7 to a two-month high of 53.4.
• India’s PMI rose 1.1 points, defying forecasts of a marginal dip, and at 52.5 was the best reading in a year.
• Australia’s PMI increased 1.9 points to 48.6, a 4-month high.
• The South African PMI reading for manufacturing was a 49.9 for a third straight month.
• The Swiss PMI outperformed expectations, rising by 1.5 points to 57.6.
• Sweden’s PMI fell by 1.8 points to a two-month low of 54.6.
• Denmark’s PMI dropped 0.5 to 56.0 but was above 50 for a tenth straight time.
• Norway’s PMI fell by 1.8 points to 51.0.
• In eastern Europe, Hungary’s PMI fell back 3.5 points to a 2-month low of 54.3; the Czech PMI advanced further to a 34-month high of 56.5; and Poland’s PMI reached a 38-month high of 55.9 after 55.4 in January. 
• Brazil’s purchasing managers index for manufacturers implied just marginal growth with a reading of 50.4, down 0.4 points from January.

Japanese private business capital spending advanced by 4.0% in the final quarter of 2013, fastest since the second quarter of 2012.  Corporate profits were 26.6% greater than a year earlier.  Japanese motor vehicle sales were 15% higher than a year earlier in February.  January had seen a 27.5% increase.

Australian new home sales recovered 0.5% in January from a 0.4% drop the month before.  Aussie job ads increased 5.1% last month, their first rise since September.  Australian corporate profits grew more slowly last quarter than in 3Q with a gain of 1.7%.  The MI-TD gauge of expected CPI inflation showed acceleration to a 7-month high of 2.7% in February from 2.5% the month before.

New Zealand’s export/import price ratio known as the terms of trade went up only 2.3% in 4Q13, slowest in a year.

Indonesian CPI inflation slowed to 7.8% in February from 8.2% in January.  Retail sales in Hong Kong were 14.5% higher in January than a year earlier.  The gain was almost twice expectations. 

Turkish CPI inflation picked up to 7.9% in February from 7.8%.  Producer prices were 12.4% above their level in February 2013 because of lira depreciation largely.

Italian GDP contracted 1.9% in 2013.  Last year’s government deficit equaled 3.0% of GDP.

Finnish GDP fell 0.3% on quarter and 0.6% in the year to 4Q13.  Portuguese industrial output and retail sales in January were 3.9% and 2.4% higher than a year earlier.

The British Hometrack house price index went up 0.7% in February and accelerated from a 12-month rise of 4.8% posted in January to one of 5.4%.  British M4 contracted 0.3% in the year to January.  Also according to Bank of England data, there were 76,947 mortgages approved, and net lending to individuals amounted to GBP 2.1 billion in the month.

Scheduled U.S. data today are the February manufacturing PMI report from the Institute of Supply Management and monthly construction spending.

Greek markets were closed for Ash Monday.

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

Tags: Crimea, Manufacturing PMIs

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