Intensifying Market Volatility

January 7, 2016

What’s hot:  Traditional hard currencies like the yen, euro and Swiss franc.  Also Treasuries and other sovereign debt.  Also gold.

What’s cold:  Oil and other commodities.  Commodity currencies, the renminbi, sterling and the dollar.  Equities and other risky assets.

Market movements:

  • The dollar has appreciated 1.2% against the Australian dollar, 0.6% versus the yuan, 0.5% relative to the kiwi, and 0.3% against sterling.
  • The dollar lost 0.8% versus the euro and 0.7% relative to the Swissie and yen.
  • Stocks plunged in the Pacific Rim by 7.0% in China, 2.7% in Singapore, 2.2% in Australia, Hong Kong and India, 3.1% in Hong Kong, 2.3% in Japan, 1.7% in Indonesia and 1.1% in South Korea.
  • Share prices in Europe so far have dropped 5.8% in Greece, 3.3% in Germany, 2.7% in Britain, France, and Italy, and 2.6% in Spain,.
  • In futures trading, the 10-year Treasury yield is off two basis points at 2.15%.  Ten-year sovereign debt yields declined a basis point in Germany, the U.K. and Japan.
  • WTI oil sank 3.0% to slightly under $33/barrel.
  • Comex gold advanced 0.9%, catapulting above $1100 to $1,102.97 per ounce.

More purchasing manager surveys were published for December.

  • Saudi Arabia’s non-oil PMI fell 1.9 points to an all-time low of 54.4.
  • The United Arab Emirates PMI dropped 1.2 points to a 40-month low.
  • A 0.9-point increase in Germany’s retail PMI lifted Euroland’s retail PMI by 0.5 points.  At 49.0, however, such indicated further deterioration in operating retail conditions.  The French retail PMI fell 1.2 points to an eight-month low of 46.6.
  • Singapore’s private PMI fell 1.1 points to 52.1 from November’s 9-month peak.
  • Hong Kong’s private PMI slid 0.2 points to a 4-month low of 46.4.  A dive last August had produced a 76-month low that month of 44.4.
  • Lebanon’s private PMI bounced off November’s 15-month low of 46.9 to print in December at 47.9, a 3-month high.
  • Germany’s construction PMI recovered 3.0 points to a strong reading of 55.5.
  • Sweden’s services PMI improved to a 7-month high of 58.0 last month from 56.3 in November.

Other significant data news include

  • Chinese international reserves plummeted $107.9 billion in the final quarter of 2015 to $3.33 trillion, indicating very forceful currency intervention to mute the yuan’s slide.  Reserves fell more than twice as much as in the third quarter and resulted in a $513 billion decrease from end-2014 to end-2015, which is a record calendar year drop.
  • Eurozone retail sales volume dropped 0.3% in November following declines of 0.1% in September and 0.2% in October.  November’s decrease trimmed the 12-month increase to 1.4% from 2.4% in October and 3.5% in the year to July.
  • Economic sentiment in the eurozone improved 0.7 points to 106.8 in December, the best score of the year.  All sectors improved.
  • German retail sales rose 0.2% on month and 2.3% on year in November, undershooting expectations.  Sales in October-November were 0.2% below the 3Q average.  There had been a 0.9% increase in retail sales volume between 2Q and 3Q.
  • Unemployment in Euroland dropped another 0.1 percentage point to 10.5% in November.  That’s a 1.0 percentage point decline in the past year but leaves the level twice as high as in the United States and even further removed from Japan’s level. 
  • There were 10K fewer new U.S. jobless insurance claims last week than in the previous week, and such averaged 275.75K over the past four weeks, 4K more than in the prior four weeks through December 5.

Central banking news:

  • Minutes from the FOMC meeting in mid-December revealed a broad consensus that U.S. inflation will accelerate in 2016 but worries that this conventional wisdom could be undermined by unfolding developments.  For some, the unanimous decision had been a “close call.”  Still, many officials expect to raise the federal funds rate in 2016 by more than markets are presently discounting.
  • The National Bank of Romania’s monetary policy rate was kept at 1.75%, its level since a 25-basis point cut last May.  However, reserve requirements on foreign-currency deposits were reduced by two percentage points to 12%.

Some other news:

  • Brazilian industrial production plunged 12.4% in the year to November, the greatest on-year decrease in 79 months.
  • Greek joblessness stood at 24.5% in October.
  • Cypriot consumer prices fell 0.7% on month and 1.2% between end-2014 and end-2015.
  • British house price inflation of 9.6% in December according to the Halifax index was the highest since June and up from 7.9% last July and 9.0% in November.
  • South African business sentiment in December plumbed to a 20-year low of 79.6, and the 2015 average reading of 86.4 was the weakest since 1993.
  • Australian building permits collapsed 12.7% in November and fell 8.4% on year.
  • Australia recorded a slightly smaller-than-forecast trade deficit of A$ 2.906 billion in November.
  • German industrial orders, which had been projected to remain more or less stable in November after a 1.7% increase in October, instead jumped another 1.5%.  A 4.8% increase in producer goods was the driver of the overall advance in orders.  Orders for domestic capital goods fell 0.6%, and foreign orders went up just 0.6%.

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

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