Bad Market News on Several Fronts

August 6, 2014

Share prices fell 1.1% in Japan and are down by 3.0% in Italy, 2.0% in Spain, 1.5% in Germany, 1.2% in Britain and France, and 1.1% in Switzerland thus far.  Earlier, stocks closed down 0.9% in India, 0.3% in China, Hong Kong, and South Korea and by 0.2% in New Zealand, Indonesia and Singapore.

The dollar is narrowly mixed, with dips of 0.2% relative to the yen and 0.1% versus the yuan, no change against the Australian dollar, and gains of 0.3% vis-a-vis sterling and the euro, 0.2% versus the Swiss franc and kiwi, and 0.1% relative to the loonie.

Sovereign debt yields have dropped 7 basis points in Britain and a basis point each in Germany and Japan.  Futures point to a multi-basis point slump in Treasury yields.

Gold climbed 0.5% to $1,291.30 per ounce, while oil is 0.2% firmer at $97.54 per barrel.

Where does one begin the litany of woeful news?  Maybe by simply pointing out the karma that such is meant to be.  This week marks the centenary observance of the start of the accidental war to end all wars, which took millions of lives, and the 7th anniversary of the outbreak of the global financial crisis that brought on the Great Recession.  In less than six weeks is the 75th anniversary of the Second World War when Poland was invaded.  So it is fitting and proper that today’s geopolitical news includes the accusation by Polish officials that the likelihood is rapidly mounting of a Russian invasion of Ukraine.

On the economic news front,

  • German industrial orders plunged 3.2% in June, twice as much as the drop in May, and was 4.3% lower than in June 2013.  New business is floundering in Euroland’s economic engine.  Orders stagnated in the first quarter of 2014 and fell 0.6% last quarter.  Worse, domestic demand for capital goods, a gauge of future business investment, plummeted 3.8% in June and 1.7% in the second quarter.  Overall foreign orders for German goods dropped 4.1% in June and were 3.1% weaker than month than the 2Q average level.
  • It’s official that Italy has regressed into renewed recession.  Real GDP posted back-to-back declines of 0.1% in 1Q and 0.2% in 2Q, and it was 0.3% lower last quarter than in the second quarter of 2013. 
  • British industrial production went up only 0.3% in June, half as much as forecast.  This halved its on-year pace of growth to 1.2% from 2.3% in May.  Factory output also rose just 0.3% in June after tumbling 1.3% in May on month.
  • The Swiss economy remains in a near-deflationary experience.  Consumer prices fell 0.4% on month in June and remained unchanged on year.
  • Greek consumer prices fell 0.7% on year.  The slide in July was 0.8% when the data are harmonized to European norms.
  • Weak service sector activity depressed the Emerging Markets purchasing manager index in July.  Despite better manufacturing, the overall index of 51.7 fell 0.6 points on month and closer to the 50-no change threshold.
  • Japan’s index of coincident economic indicators dropped 1.8 points to a nine-month low of 109.4 reading in June, evoking the official assessment that the economy’s trend is “weakening.”  The index of leading economic indicators rebounded to 105.5, a two month high, but the index of lagging economic indicators scored a 3-month low.
  • The kiwi fell to a two-month low against the U.S. currency following the release of disappointing labor market indicators.  Average hourly earnings went up just 0.5% in 2Q, less than expected and less than the 1Q advance of 0.7%. 
  • Euroland’s retail purchasing managers index slumped 2.4 points to a 14-month low of 47.6 in July.  the French retail PMI of 45.6 also constitutes a 14-month low, while Germany’s 52.1 and Italy’s 43.4 represent 4- and 5-month troughs.
  • British shop prices fell 1.9% on year in July following 12-month decreases of 1.8% in June and 1.4% in May.
  • Ireland’s service-sector PMI declined 1.3 points to a 4-month low of 61.3.

In other news, the Bank of Thailand as expected left its key central bank interest rate unchanged at 2.0% for a third straight time.  The rate previously was reduced five times by 25 basis points each between November 2012 and March 2014.

 

British car sales were 6.6% greater in July than a year earlier.  The Halifax index of U.K. house prices rose 1.4% in June, considerably more than forecast, and showed accelerated on-year growth of 10.2% in the second quarter.

Malaysia’s trade surplus narrowed 30.6% to MYR 3.97 billion in June.  The Czech trade surplus widened 28.8% on month to CZK 19.12 billion in June.  Industrial output in Hungary showed another double-digit on-year advance of 11.3% in June after 10.1% in the year to May.

Sprint’s effort to acquire T-Mobile was abandoned, sending both companies’ share prices into a steep tumble.

The United States and Canada report trade data shortly later today.  ECB and Bank of England policy announcements are awaited Thursday.

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

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