Corrective Day in the Market

January 7, 2015

Stocks and sovereign debt yields are higher.  So is oil (marginally) and the dollar.  Gold slid for the first time in several sessions.  Much can change before this day is done.  Several data releases are due: minutes from the December FOMC meeting, U.S. and Canadian trade figures, the ADP estimate of U.S. private employment growth last month, and Canada’s IVEY-PMI index.

The dollar has recouped 0.6% against the yen, 0.5% versus the euro, 0.4% relative to the Swiss franc, 0.2% vis-a-vis the Australian dollar and sterling, and 0.1% against the kiwi.  The yuan is steady, and the loonie has edged 0.1% higher against its U.S. counterpart.

European Share prices have risen 1.3% in Paris, 1.2% in Frankfurt and London, 1.1% in Milan and Madrid, and 0.5% in Zurich.

Japan’s Nikkei close unchanged.  Elsewhere in the Pacific Rim, stocks rose 0.8% in Hong Kong, 0.7% in New Zealand and Indonesia, 0.5% in Singapore, and 0.4% in Taiwan.  The Chinese and South Korean markets only gained 0.1%, and Australian equities lost 0.2% of value.

U.S. stock futures are up.  Treasury yields have firmed a little, but the 10-year is still under 2.0% at 1.97%.  The 10-year British gilt yield rose six basis points, while the 10-year German bund is two basis points firmer.  The 10-year Japanese JGB is hovering at 0.29%.

Comex gold eased back 0.5% to $1,213.90 per ounce.  West Texas Intermediate crude oil rose 0.3% to $48.05 per barrel.

The first central bank interest rate announcement has been a cut.  The National Bank of Romania’s benchmark was lowered as expected to 2.5% from 2.75%.  In 2014, such was cut five times and most recently in November, all by 25 basis points.

Euroland CPI inflation turned negative in December to an even greater extent than anticipated.  A 0.2% drop in consumer prices from a year earlier followed on-year increases of 0.3% in November, 0.4% in October and 0.8% at the end of 2013.  Energy prices slumped 6.3%, accelerating from a 2.6% on-year drop in November.  The rate of non-energy CPI inflation held steady at 0.6%, while core inflation ticked up to 0.8% from 0.7%.  The risk is nonetheless growing that free-falling energy prices will infect core inflation.  The -0.2% rate of CPI change was the lowest since September 2009.

The jobless rate in the euro area was 11.5% in November, same as in the prior three months.

Euroland’s retail purchasing managers index (PMI) fell back 1.3 points to a two-month low of 47.6 last month.  It’s been lower than the 50 no change threshold since July.  Retail PMI scores in December of 51.7 in Germany and 46.5 in France were also two-month lows, while Italy’s reading dropped 1.4 points to a 4-month trough of 42.8.

Germany’s construction PMI dropped by a sharp 3.0 points to a 4-month low of 50.5 in December, signaling only marginal growth.

Sweden’s service-sector PMI dropped 1.5 points to a 4-month low of 55.4.

The global service-sector PMI compiled by JP Morgan sank to a 14-month low of 52.3 in December from 53.4 in November, as orders hit a 20-month low.  The composite PMI, which also considers manufacturing, fell by 0.8 points to 52.3.

Australia’s Performance of Services index, akin to a PMI, improved to a 4-month high of 47.5 last month but remained in contractionary sub-50 territory.

Lebanon’s private sector PMI fell from a 17-month high of 49.5 in November to a 2-month low of 49.3 last month.

Germany reported better-than-forecast labor statistics and retail sales.

  • The jobless rate edged down 0.1 percentage point to 6.5% last month, 0.3 ppts under the end-2013 level.  There were 27K fewer unemployed workers, whereas analysts were forecasting a drop of just 5K.
  • Retail sales volume increased 1.0% in November after a 2.0% gain in October and drops of 0.4% in 2Q14 and 0.3% in the third quarter.  Sales were 0.8% lower in November than a year earlier.

Shop prices in the U.K. fell 1.7% between end-2013 and end-2014, but new car registrations, a gauge of sales, went up by 8.7%.

Italy’s jobless rate unexpectedly rose to a record 13.4% in November.  Italian consumer prices were unchanged from a year earlier but down 0.1% on a harmonized basis.

Austrian wholesale prices fell 4.5% in the year to December, reflecting intensifying deflationary pressure after a 2.6% on-year drop in November.

Chinese consumer confidence improved 1.4% in December.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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