Stronger Euro, Weaker Yen

March 3, 2016

The dollar rose as high as JPY 114.28 overnight, its strongest level since February 15.  It’s off that high currently but still up 0.4% on balance.  At the same time, the U.S. currency shows overnight losses of 0.6% against the New Zealand and Australian dollars, 0.4% versus the euro, 0.3% relative to the Swiss franc and 0.1% vis-a-vis sterling.  The ruble is lower, while the yuan has firmed on rising expectations of more stimulus from the Chinese government. 

A member of the Bank of Japan Board, Nakaso, said monetary officials aren’t considering another interest rate cut yet but urged government officials to undertake structural reforms as quickly as possible.

European stocks are slightly lower following a multi-session streak of advances.  Stocks are down 0.8% in Switzerland and 0.2% in both Germany and France.

Japan’s Nikkei climbed 1.3%.  Elsewhere in the Pacific Rim, stocks rose 1.2% in New Zealand and Australia, 2.2% in Singapore, 1.5% in India on top of a 2.0% jump yesterday, 0.8% in Taiwan, 0.4% in China, and 0.6% in South Korea.

Oil is little changed.  WTI crude is trading above $34.50 at $34.71 per barrel.  Gold firmed 0.2% to $1,243 per ounce.

Ten-year sovereign debt yields rose a basis point in Germany to 0.22% and Japan to -0.03%.

Many February purchasing managers surveys, mostly for services and services and manufacturing combined, were reported.

Euroland’s composite PMI fell 0.6 points to a 13-month low of 53.0, suggesting slower GDP growth in the first quarter of 2016 than the last one of 2015.  Among members, the composite indices of Spain and France dropped to 14- and 13-month lows of 54.5 and 49.3.  The German and Italian indices were each five month lows, printing at 54.1and 53.7.  Ireland retained the strongest expansion rate, with a composite PMI of 59.5, nonetheless the lowest since October.

Euroland’s services PMI also dropped to a 13-month low, printing at 53.3.  The Spanish and French PMIs in services were 15-month lows of 54.1 and 49.2.  The German and Italian service-sector PMIs were 2-month highs of 55.3 and 55.3.  Germany in particular has developed a 2-speed economy with manufacturing stagnating but services still advancing decently.  Ireland’s services PMI was at a 2-month low of 62.1, topping the leader board.

The Japanese services purchasing managers index dropped 1.2 points to a 7-month low of 51.2.  Orders grew at their slowest pace in 3 months, and the composite PMI (services and manufacturing) was at a 2-month low of 52.4.

China’s services and composite PMIs were at 49.4 and 51.2 in February, 2-month lows in each case.

The British services PMI fell by a sharp 2.9 points to a 35-month low of 52.7.  Together with a 34-month low in manufacturing of 50.8 and a 10-month trough in the construction PMI of 54.2, one can forget about a British interest rate hike for the foreseeable future.

The private non-oil PMIs of Egypt, Saudi Arabia, and the U.A.E. printed at 2-month highs of 48.1, 54.4 and 53.1.  Lebanon’s private PMI of 47.4 implied the fastest rate of contraction in three months.

Russia’s services PMI was above 50 for the first time since September, printing at a 5-month high of 50.9  The composite Russian PMI of 50.6 constitutes a 3-month high but implies continuing very weak growth.

India’s services and composite purchasing manager indices of 51.4 and 51.2 were each at their lowest levels in February since November.

The South African private PMI (49.1) remained below the 50 level that separates expanding activity from contraction. The score was 0.5 below that in January.

Singapore’s private PMI registered a reading of 51.6, lowest since October.

Australia’s services PMI rebounded 3.4 points to a 5-month high of 51.8 in February.

Yesterday’s Fed Beige Book of regional conditions was less upbeat than the previous one.  Two districts had downgraded conditions.  Concern was express about manufacturing and the dollar.

Eurozone retail sales volume in January recorded a third straight monthly rise, this time of 0.4% after advances of 0.1% in November and 0.6% in December.

Japanese stock and bond transactions last week generated a tiny net outflow of JPY 84 billion.  There had been a 2.2 trillion yen net capital outflow in the prior week.

Australia’s trade deficit of A$ 2.937 billion in January was smaller than expected and below December’s shortfall of A$ 3.524 billion.  November saw a A$ 2.8 billion deficit posted.

In the year to February, Turkish consumer prices and producer prices respectively climbed 8.8% and 4.5%.  Both increases were less than seen the month before.

South Korea consumer price inflation rose to 1.3% last month.  Core inflation was at 1.8% in February.

Two British house price indices for February were released.  The Nationwide index accelerated to 4.8% on year, and the Halifax index showed an unchanged on-year advance of 9.7%.

U.S. labor productivity in 4Q15 was revised to a smaller drop of 2.2% from an earlier estimated decline of 3.0%.  Productivity grew just 0.5% between 4Q14 and 4Q15 and posted sequential calendar year changes of zero in 2013, 0.8% in 2014 and 0.7% in 2015.  Unit labor costs increased 3.3% last quarter, less than reported previously and were 2.1% greater than in 4Q14.  Unit labor costs on average climbed 2.0% in 2014 and 2.1% in 2015.

U.S. new jobless insurance claims ticked up 6K last week to 278K, but the latest four-week average of 270.25K per week was down from a mean of 284.75K per week in the prior four weeks to January 30.  That back in line with what occurred since mid-2015.

Still ahead: U.S. factory orders.  The monthly labor Dept jobs report is scheduled for tomorrow.  Events to watch further out are an ECB policy meeting on March 10, critical U.S. primaries including Florida and Ohio on March 15, and the FOMC meeting on March 16.  Mitt Romney will give an anti-Trump speech later today.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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