Markets Watching Greece and China Anxiously
February 9, 2015
Who’s going to flinch first in the standoff over Greek debt. Prime Minister Tsipras and his finance minister Varoufakis spoke more emphatically about a break with austerity. The prime minister reaffirmed his campaign promises to boost the minimum wage. Greece’s creditors continue to insist that there can be no watering-down of Greece’s debt obligations. Greek officials are now asking for EUR 160 billion of reparations from Germany for damages inflicted by the Nazis in World War 2. One fear is that the anti-austerity and anti-German movement will spread to other big debtors in the eurozone. This seems to be happening in Spain.
In response to the deepening impasse, 10-year ezone bond yields rose 8 basis points in Greece, 5 bps in Portugal and 4 bps in Italy and Spain but slid a basis point in Germany. . Share prices have plunged 5.9% in Greece and fallen by 2.3% in Spain, 2.2% in Italy, 1.2% in France, 1.6% in Germany,
Ten-year yields are down 6 bps in the U.K. but up 2 bps in Japan. Futures signal a drop in Treasury yields.
In the Pacific Rim, stocks fell 1.7% in India, 0.6% in Hong Kong, 0.5% in New Zealand and 0.4% in Taiwan, Singapore and South Korea, but Japan’s Nikkei rose by 0.4%.
The dollar declined overnight by 0.7% relative to the kiwi and 0.2% versus the yen, loonie and Australian dollar. The greenback rose 0.4% against the euro, 0.2% versus sterling and 0.1% against the yuan, and the Swiss franc is unchanged.
West Texas Intermediate oil’s recovery was extended by 2.0% to $52.70 per barrel. Gold rose 0.5% to $1,240.70 per ounce.
There’s been a two-day Group of Twenty meeting in Istanbul, where officials favor continuing monetary accommodation and applauded the ECB decision to undertake significant quantitative easing beginning next month.
A massive 19.1% on-year plunge in Chinese imports during January caused by scant demand for raw materials generated a record $60.03 billion trade surplus instead of expected surplus size of $48-49 billion for the month. Exports, down 3.3%, also fell from the year-earlier level. The monthly average surplus was $49.8 billion in the final quarter of 2014 and $5.5 billion in the first quarter of last year.
Japan recorded an unadjusted JPY 187 billion current account surplus in December, which was only half its expected size. The adjusted current account was JPY 977 billion in December and averaged JPY 946 billion last quarter. Nonetheless, a 2014 current account surplus of JPY 2.627 billion, down from JPY 3.234 billion in 2013, was the fourth drop in a row. The settlement’s trade deficit grew 18% last year and topped JPY 10 trillion at JPY 10.364 trillion. But portfolio investment outflows decreased to JPY 4.885 trillion from JPY 25.484 trillion the year before.
Stock and bond transactions in Japan last month generated a 3.4 trillion yen outflow, however.
Bank lending in Japan posted the same 2.5% on-year advance in January as recorded in the fourth quarter of last year.
Japan’s economy watchers index, a surveyed image of what service sector workers perceive, edged up to a 4-month high of 45.6 in January from 45.2 at end-December. The outlook component reached 50 for the first time since August.
Consumer confidence in Japan printed below a 40 reading in January at 39.1. Such was the fourth straight sub-40 score and the eighth reading under 40 since last February.
Japanese bankruptcies dropped 16.5% between January 2013 and January 2014 following on-year declines of 14.6% in November and 8.5% in December.
Ireland’s construction purchasing managers index fell by six points to an 11-month low of 57.1 in January.
The Bank of France’s business sentiment index for the second largest eurozone economy improved to a better-than-expected reading of 98 in January from 96 in December. The central bank is predicting French GDP growth of 0.4% this quarter.
The Sentix measure of investor sentiment toward the euro area leaped to a 9-month high of 12.4 this month from 0.9 in January, -2.5 in December and -11.9 in November. A deepening Greek-German standoff threatens to reverse this improvement, however.
Germany’s trade and current account surpluses surprised on the upside in the final month of 2014. The current account widened 34% on month and 19% on year to EUR 25.3 billion (marginally over $30 billion). The 2014 current account surplus averaged EUR 17.9 billion per month and was 13.8% bigger than the surplus in 2013. The seasonally adjusted trade surplus averaged 20.2 billion euros per month in the fourth quarter. Exports rose 3.7% in 2014 but advanced 10.0% between December 2013 and December 2014. Germany is inviting foreign criticism of manipulating the common currency system to its own competitive advantage.
Greek industrial production fell 2.7% in 2014 after dropping 3.2% in 2013. The December-over-December decrease accelerated to 3.8%. Dutch industrial output dived 8.6% on year in December. Turkish industrial production rose by a bigger 2.6% on year in December.
Denmark’s current account surplus narrowed 12% in 2014 to DKK 119.7 billion. Hungary’s trade surplus narrowed 0.9% in 2014 to EUR 6.499 billion. Portugal’s trade deficit of EUR 2.6 billion in December was marginally smaller than the November shortfall.
Under a revised and disbelieving new methodology of calculating Indian GDP, growth for last quarter was placed at 7.5%, which is as high as China experienced. Analysts were predicting little more than 5.0%.
Indonesian retail sales increased 4.3% in the year to December, down sharply from an 11.4% advance in the year to November.
Australian Prime Minister Abbott survived a challenge from within his own party but by a narrower margin than expected.
Canadian housing starts of 187.3K last month were 4.3% greater than December’s total.
Weather in the Eastern United States continues to be unseasonably stormy. A bitter winter last year was largely responsible for a 2.1% annualized contraction of GDP in the first quarter of 2014 and held down full-2014 growth to 2.4%, not too dissimilar from 2.2% in 2013 and 2.3% in 2012.
Copyright 2015, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Chinese trade, German current account, Greek debt, Japanese current account