Risk Aversion Intensifies

March 12, 2014

The Ukraine political standoff, the inexplicable loss of Malaysian Airlines Flight 370, ongoing concern about China’s economic outlook, and disappointment over the lack of more monetary stimulus in Japan have weighed further on financial market sentiment.

Share prices in Europe are down by 1.4% in Germany and France and 1.1% in Spain after a 394-point (2.6%) earlier plunge in the Nikkei-225.  In other Pacific Rim stock markets, equities fell by 1.7% in Hong Kong, 1.6% in South Korea, 1.0% in Singapore, and 0.6% in Australia but managed to edge 0.3% higher in China.

The dollar fell 0.3% against the yen, a barometer of risk aversion, and 0.2% relative to the Swiss franc.  The dollar has risen 0.4% versus the Aussie dollar, 0.2% relative to the kiwi, loonie and sterling, and 0.1% against the yuan.  EUR/USD is unchanged.

The yields on ten-year British gilts and Japanese JGBs fell by four and one basis points.  German bunds are steady.

Copper plunged.  WTI crude oil dropped 1.2% and is under $100 at $98.82 per barrel.  Gold went up another 0.8% to $1,357.60 per ounce.

On the central bank watching front,

  • The Bank of Japan’s monthly economic assessment reiterated the gist of yesterday’s post-meeting statement that Japan’s economy is recovering moderately, aided recently by a front-loaded, pre-consumption tax hike boost in domestic demand.  Remarks by Governor Kuroda have dampened any thought of additional stimulus happening before mid-summer, if then.
  • The Bank of Thailand implemented another 25-basis point rate cut.  The move to 2.0% was expected but decided by a close 4-3 vote.
  • The Bank of England’s chief economist expressed no hurry to start tightening.
  • A rumor has circulated that China’s reserve requirement may be cut if growth tracks below the 7.5% target.

Industrial production in the euro area fell 0.2% in January after a 0.4% drop in December, but the 12-month rate of rise increased to 2.1%.  Energy slumped 2.5% for a second straight month, while output of capital goods revived 0.9%.  Production overall was 0.1% higher than the 4Q mean level.

Spanish consumer prices were unchanged on month and on year in February.  French employment edged up 0.1% last quarter, reversing the drop in 3Q13.

Japanese consumer confidence slumped by 2.2 points to 38.3 in February, its worst reading since 2012.  There’s lots of uncertainty ahead of next month’s consumption tax hike to 8% from 5%.

Japan’s tertiary index, a monthly gauge of service-sector activity, increased 0.9% in January.  Such was 0.8% above the 4Q13 average but only 2.0% greater than in January 2013.

Japanese domestic corporate goods prices slid 0.2% in February, thanks to a 1.4% drop in oil and coal products.  The domestic CGPI was 1.8% higher than a year earlier, but export and import prices posted on-year declines of 2.6% and 0.8%, respectively.

The Conference Board’s index of Japanese leading economic indicators fell by 0.7% in January after a 0.2% decline in December.

Japan’s Ministry of Finance released its quarter survey of business sentiment, which showed a 4.4-point rise between last quarter and now for all large firms but then predicts an 18.1-point relapse to a negative 9.8 reading in 2Q after the consumption tax hike.

Australian consumer confidence declined 0.7% in March according to Westpac’s measure, marking a fourth straight decrease and leaving such at a 10-month low.

Australian home loans were unchanged on month in January, which was a better-than-forecast result.  They ad dropped 3.3% in December.

South Korean unemployment shot up to a 3-year high of 3.9% in February from 3.2% in January.

Turkey’s current account deficit narrowed 41% to $4.88 billion in January.  South Africa’s current account gap in 4Q was 17% smaller than in 3Q.

No market-moving U.S. data releases are scheduled today, but retail sales and import prices are due Thursday.

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

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