Concern about World Growth and Fed Tightening Still Weighing on Stocks
October 8, 2014
Equities in the Pacific Rim closed down 1.2% in Japan, 1.5% in Indonesia, 1.0% in Taiwan, 0.7% in Hong Kong and 0.8% in Australia. The reopened Chinese market after a week’s closure rose 1.1%, but that’s the exception. Stocks in Europe are down by 0.9% in Switzerland, 0.8% in Germany, 0.7% in France, 0.6% in Spain, 0.5% in Britain and 0.4% in Italy.
Commodities weakened, spurred in part by yesterday’s downscaled growth forecasts released by the IMF. Comex gold slumped 1.5% to $1218.9 per ounce and is now marginally more than 31% weaker than its value two years ago. WTI oil, which fell by 1.1% ovrnight to $87.91 per barrel, shows a drop of 17.7% since June 20.
Today’s market focus will be on U.S. equity market action and on whether released FOMC minutes due at 18:00 GMT foreshadow a change in forward guidance language as soon as the next planned meeting.
In other central bank news, Narodowy Bank in Poland cut its key interest rates by 50 basis points. Expectations had been split between no change and a reduction of 25 basis points. New York Fed President Dudley said the market’s implicitly assumed mid-2015 presumption of an initial fed funds rate hike is “reasonable.” Earlier, Minneapolis Fed President Kocherlakota said a rate hike before 2016 would be inappropriate.
South Korea’s Ministry of Finance escalated its complaint about yen weakness, identifying such as a downside growth factor.
Ten-year British gilt and Japanese JGB yields slipped by two and one basis points, respectively, while the German bund held steady at 0.90%.
Dollar overnight movements have been comparatively mild considering the upheaval in other financial markets. The greenback is up 0.3% relative to the Australian and New Zealand dollars, 0.2% versus the yen, and 0.1% relative to the euro, Swissie and sterling but shows a 0.1% downtick against the loonie and is unchanged versus the yuan.
Citing an error with the seasonal adjustment factor, the large rise in Australian employment during August was revised sharply to 32K from 121K reported on September 11. September data arrive tomorrow. The Aussie dollar fell on news of the data mistake.
Japan’s seasonally adjusted current account surplus widenedto 131 billion yen in August from JPY 99 billion in July, despite a 5.8% widening of the merchandise trade deficit caused by a 1.3% on-month drop in exports. This was the fifth straight current account surplus, but the export data still indicate a lack of stimulus from yen depreciation. The unadjusted current account surplus of 287 billion yen was 83% bigger than that booked in August 2013 in spite of a 12% on-year rise in the trade deficit. Exports were only 1.0% greater than in August 2013.
In other Japanese data reported today, the economy watchers index, a gauge of service sector conditions seen from the eyes of workers in such industries, printed at an unchanged and weak 47.4. After swooning after the consumption tax hike to 41.6 in April from 52.9 in March, such had recovered to 51.6 by July. But it suffered a subsequent relapse. Even worse, the forward-looking economy watchers outlook index dropped to 48.7 last month from 50.4 in August, 51.5 in July, and 53.3 in June. Separately, Japanese bankruptcies, which posted an 11.2% on-year decline in August, were 0.9% greater in September than a year before.
HSBC reported results of China’s service-sector purchasing managers survey for September. The index slid 0.6 points to a 2-month low of 53.5 but remained comfortably above the record low of 50.0 in July. The composite Chinese PMI also fell to a 2-month low, declining by 0.5 points to 52.3.
Britain’s Halifax house price index rose 0.6% in September, but the 12-month rate of increase edged down to 9.6% from 9.7% in August and 10.2% in July.
According to British Retail Consortium data, shop prices posted a 17th straight on-year decline in September, this time of 1.8%. A 0.3% uptick in food was the lowest food price inflation ever recorded in this data series.
Swiss unemployment stayed at 3.2% last month. Czech joblessness slid to 7.3% from 7.4%. Spanish industrial production increased only 0.6% in the year to August, slightly less than half analyst expectations.
The Bank of France’s business sentiment index weakened back to 96 last month after rising to 97 in August from 96 in July. The central bank expects French GDP to post a 0.2% rise in the third quarter.
Filipino CPI inflation slowed to 4.4% last month from 4.9% in August. Core CPI stayed level at 3.4%, and producer prices in August posted a 2.2% on-year drop.
Indonesian retail sales growth slowed to 9.0% in August from 19.2% in July.
Former Fed Chairman Bernanke speaks on the world economy today. Canadian housing starts will be released as well as FOMC minutes from its September meeting.
Copyright 2014, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British house prices, Chinese services PMI, Japanese current account