Risk Aversion is Back

September 23, 2014

Share prices in the Pacific Rim fell 1.6% in India, 0.6% in Indonesia and 0.5% in Taiwan and South Korea.  Japan was closed for the Autumnal Equinox holiday.  Downward equity momentum has picked up in Europe, with losses so far of 1.6% in France, 1.3% in Great Britain, 1.1% in Germany, Italy and Spain, and 0.5% in Switzerland.

The U.S. dollar  lost 0.8% against the Australian dollar, 0.4% versus the Swiss franc, 0.3% relative to the loonie and euro, 0.2% against the yen and 0.1% relative to sterling.  The dollar is unchanged against the kiwi and yuan.

Ten-year sovereign debt yields fell back two basis points in Britain and Japan and by a single basis point in Germany.

Comex gold rebounded 0.7% to $1,226.20 per ounce.  West Texas Intermediate crude oil increased 0.4% to $91.25 per barrel.

The United States is leading air attacks on Syria against ISIS.  Besides this new geopolitical hotspot, investors are worried about coming U.S. tax inversion rules and worry if corporate earnings can maintain momentum that justifies current share price values.

European September purchasing manager survey results confirm a deterioration in business sentiment from anxiety about the Ukraine situation and feared repercussions from ramped-up sanctions against Russia.

Consumer sentiment in the euro area fell another 1.4 points to a 7-month low of minus 11.4 in September.  The reading was weaker than forecast.

The euro area’s composite purchasing managers index dipped another 0.2 points to a 9-month low of 52.3.  Output and new orders are expanding more slowly.  Jobs are stagnant.  The manufacturing PMI sank to a 14-month low of 50.5, while the services PMI printed at a 3-month low of 52.8 and embodied weakening business expectations.

Germany’s composite PMI edged up 0.3 points to a 2-month high of 54.0 despite a 1.1-point slide in manufacturing to a 15-month low of only 50.3.  Analysts had expected manufacturing to print around 52.0.  Business sentiment in Germany slipped near to a 2-year high in a further indication of mounting malaise in the region’s strongest economy. 

The French composite PMI was below the 50 expansion-or-contraction threshold for a fifth consecutive month, falling by 0.4 points to a 3-month low of 49.1.  Although manufacturing rebounded 1.9 points to a 4-month high of 48.8, services sank 0.9 points to a 3-month low of 49.4. 

Chinese manufacturing PMI ticked up to 50.5 in September from 50.2 in August, 51.7 in July, 51.0 in June, 50.8 in May and 48.1 in April.  Markets were relieved the outcome was still above 50, and this gave some lift to selected commodity-sensitive currencies like the Australian and Canadian dollars.

Revised French GDP data for 2Q confirmed no quarter-on-quarter growth, same as in 1Q versus 4Q, and a year-over-year uptick of just 0.1%, down from 0.8% in the first quarter.  Domestic demand augmented GDP growth by 0.1 percentage point but was neutralized by a negative influence from net foreign demand.  Inventories neither lifted nor depressed second-quarter GDP growth.

French business sentiment slid a point to a reading of 91 in September from 92 in August, 93 in July, 94 in June and 95 in May.  The manufacturing reading stayed at 96, still below the long-term average of 100, while sentiment in services fell by two points to 91.

Two Fed officials spoke overnight.  N.Y. Fed President Dudley expressed hope that interest rates could be raised next year but said it will be important to be sure the U.S. economy can handle tightening without jeopardizing progress toward the labor market and inflation goals.  Minneapolis Fed President Kocherlakota echoed that central bank officials need to be cautiously patient as they proceed with rate normalization and called U.S. economic performance still disappointing.

The Central Bank of Sri Lanka left key interest rates unchanged.  The central bank of Hungary makes an interest rate announcement shortly.

The British Bankers Association reported lower-than-forecast mortgage approvals of 41,588 in August than had been expected.  July’s level was 42,715.

The U.K. public sector net borrowing of GBP 10.883 billion in August was above forecasts.  July saw net repayments of GBP 488 million.  The public-sector net cash requirement swung to 1.583 billion pounds in August from negative GBP 7.247 billion in July.

Irish producer prices edged up 0.3% in August but were still a hefty 2.0% lower than a year earlier.  Polish retail sales grew 1.7% between August 2013 and August 2014.

CPI inflation in Singapore slowed to 0.9% last month from 1.2% in July. 

Scheduled U.S. data releases for today are the preliminary manufacturing PMI compiled by Markit Economics, the Richmond Fed manufacturing index, the FHFA house price index and weekly chain store sales. Canada releases retail sales, and Mexico will be reporting both retail sales and wholesale turnover.

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

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