Markets Fooled by Succession of Surprises
April 1, 2016
First oil tumbled almost 4% when a top Saudi political official said Saudi participation in a production freeze would be condition on full solidarity of the whole OPEC cartel, including Iran, in the effort. The pall cast over Asian and European investor sentiment was reflected in share price losses of 3.6% in Japan, 1.6% in Australia, 1.5% in Honk Kong, 1.1% in South Korea, 1.0% in Taiwan as well as losses so far between 1.5% and 2.0% in France, Germany, Greece, Switzerland, Spain and Italy.
Next, the Bank of Japan’s quarterly Tankan corporate survey was riddled with caution and pessimism. The diffusion index for big manufacturers dropped 6 points in March and is expected to slide another 3 points by June to a 13-quarter low. Lower corporate earnings are anticipated in fiscal 2016, which begins today than in the last fiscal year, and investment plans point to lessening capital spending as well. Japanese motor vehicle production was 3.2% lower in March than a year earlier.
The 10-year Japanese JGB yield slid down several basis points to -0.07%.
The dollar appreciated 1.3% against sterling. Britain’s manufacturing purchasing managers index clawed just 0.2 points higher from February’s 34-month low to rest at a lowly reading of 51.0 in March.
The dollar is widely mixed otherwise, with gains of 0.6% against the kiwi, 0.5% relative to the yuan, and 0.1% relative to the Australian dollar but looses of 0.6% against the loonie and 0.2% versus the yen, euro and Swiss franc. The recent strength in many emerging market currencies was trimmed.
Gold slid 1.6% to $1,213.14 per troy ounce. WTI crude oil is marginally under $37 per barrel.
March purchasing manager surveys for manufacturing revealed interesting developments:
- There was good news for China. The privately compiled Caixin PMI improved 1.7 points to 49.7, and the government snapshots rose 1.2 points to 50.2 in manufacturing 1.1 points to 53.8 in nonmanufacturing. It’s been quite a while since both indices were each above the 50 no change threshold.
- PMI indices climbed to a 2-month high in Euroland of 51.6 even though both France (49.6) and Germany (49.0) posted sub-50 scores.
- Other economies with better PMI scores than in February were Australia (a 191-month high of 58.1); Sweden (a 2-month high of 53.3 after an 18-month low of 51.7 in February); Brazil (a 2-month high of 46.0); Mexico whose PMI edged up 0.1 to 53.2; (Indonesia (an 18-month high of 50.6 following 17 straight sub-50 readings). The Vietnamese, Malaysian South Korean and Taiwanese indices rebounded to 2-month highs of 50.7, 48.4, 49.5 and 51.1. Switzerland’s 53.2 reading was 1.6 points better than in February and at a 15-month peak. The U.S. PMI compiled by Markit Economics rose to a 2-month high, but the more widely followed ISM index increased by a sharper 2.3 points and, at 51.8, was above the no-change level for the first time since August 2015. Canada’s manufacturing PMI advanced 2.1 points to a 15-month high of 51.5, and Poland’s 53.8 was at an 8-month high.
- Countries whose PMI readings fell in March include Japan (down a full point to 49.1); Turkey’s six-month low of 49.2; a 6-month low in Turkey’s index of 49.2; Hungary’s 3-month low of 51.7; Norway’s 7-month low of 46.8; Russia’s 7-month low of 48.3; and a 5-month Czech low of 54.3.
The U.S. Labor Department’s March jobs report was widely positive. Employment (+215K) grew more than 200K for a second straight time. The jobless rate ticked up to 5.0% because of greater labor force participation. Average hourly earnings growth accelerated to 0.3% on month and 2.3% on year.
However, U.S. construction spending unexpectedly dipped 0.5% in February, and the March revised U. Michigan/Reuters consumer sentiment index of 91.0, though representing an upward revision, was nonetheless at a 5-month low.
U.S. stocks show a slight 0.25% uptick on the day, not giving in to the downward trend momentum in Europe and Asia.
In the year to March consumer prices rose 1.0% in South Korea but fell 0.5% in Thailand.
Swiss retail sales slipped 0.4% on month and 0.2% on year in February. In the same 12 months, Brazilian industrial output plunged 9.8%.
The hot British housing market saw prices according to the Nationwide index accelerate to 5.7% on year in March from 4.8% in February, 4.4% in January, 4.5% in December and 3.7% in November.
Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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