Gold and Yen Stronger but Stocks, Bond Yields, and Emerging Market Currencies Decline

April 5, 2016

The yen is 0.6% stronger on balance, powered by a fresh wave of safe-haven seeking capital flows.  Many service sector PMI reports were disappointing.  Japan’s index and its composite PMI fell to one-year lows, for example.  The yen touched 110.26 per dollar, its most appreciated level since October 2014.  Comex gold rose 1.3% to $1,231.59. 

Japan’s Nikkei swooned 2.1% and fell blow 16K to 15,733.  Selected other stocks in the Pacific Rim dropped 1.5% in Hong Kong, 2.0% in India, 1.0% in Taiwan, and 1.4% in Australia.  In China, the Shanghai Composite index bucked the trend with a 1.5% advance.  European equities are off 2.3% in Germany, 2.4% in Italy, 2.0% in Spain, 2.1% in France and 1.4% in Great Britain.

Among 10-year sovereign debt yields, the German bund is down 2 basis points and briefly dipped below 0.10%. The British gilt fell 8 bps, but the Japanese JGB is up four basis points on safe haven demand.

The dollar has risen 1.4% against the rand, 0.9% relative to the kiwi, 0.8% versus South Korean won and Aussie and Canadian dollars, 0.6% against sterling, 0.2% vis-a-vis the euro and 0.1% against the Swiss franc.

West Texas Intermediate crude oil edged off 0.1% and remains below $36 at $35.67 per barrel.

There were two central bank policy meetings.

  • The Reserve Bank of India’s repo rate was cut 25 basis points to slightly over a 5-year low of 6.5%, while the reverse repo rate was raised by 25 bps ot 6.0%.  The bank stepped up efforts to force bank lending rates to more fully match central bank easing.
  • The Reserve Bank of Australia retained its record low Official Cash Rate of 2.0%.  It’s been at that level since a cut last May.

German factory orders declined 1.2% in February.  Analysts had anticipated a slight increase.  The unexpected relapse left orders just 0.3% above year-earlier levels.  Export orders sank 2.7% on month.

Retail sales volume in Euroland posted a fourth straight monthly increase, a 0.2% rise in February associated with a 2.4% 12-month rate of advance.  But sales fell by 0.4% in Germany.

Japanese labor cash earnings recorded on-year growth in February of 0.9%, most since July.  Such had been unchanged on year in November, December and January.

Australia’s trade deficit in February of A$ 3.41 billion was more than 30% greater than forecast.  The deficits were A$ 3.96 billion in December and A$ 3.16 billion in January.

On-year growth in Swedish industrial production slowed to 3.8% in February from 4.4% in January.

Japan’s services purchasing managers index declined 1.2 points to the no-change level of 50.0 in March.  Japan’s composite PMI of 49.9, like the services index, was the weakest reading since March 2015.

Australia’s Performance of Services index relapsed to a contractionary and 2-month low of 49.5 in March.

Britain’s services PMI bounced off of February’s 35-month low of 52.7 to score a 2-month high of 53.7.  The composite purchasing managers index also rose to a 2-month high, but the the depressed first-quarter average and weak business sentiment component suggest GDP expanded only 0.4% last quarter, down from 0.6% in 4Q15.

Euroland’s services PMI was revised down relative to the flash indication to a 14-month low of 53.1.  France (49.9) and Italy (a 13-month low of 51.2) were mostly responsible for the revision.  Germany’s 55.1 was a 2-month low.  Euroland’s composite PMI of 53.1 was marginally above February’s 13-month low of 53.0.  The Italian and German composite readings were at 12- and 8-month lows.

In the Middle East, the non-oil PMIs in March of Lebanon and Egypt fell to 26- and 31-month lows of 45.0 and 44.5, where 50 separates expansion from contraction.  The further from 50 the score is, the faster or slower is the pace of activity.  The Saudi and U.A.E. PMIs improved to 4-month highs of 54.5 each.

Singapore’s private sector PMI rose 0.4 points to a 2-month high of 52.0.

In the comparatively short month of February, the United States posted its largest merchandise trade and goods and services trade deficits since August.  They were respectively $64.743 billion and $47.06 billion, up from $63.865 billion and $45.882 billion in January.

The Canadian trade deficit in February of C$ 1.908 billion was triple the size posted in January.  Exports posted an on-month contraction of 5.4%, twice the size of the 2.6% drop in imports.  Export and import growth from February 2015 was similar at 2.1% and 2.3%.

Still to come:  the U.S. non-manufacturing PMI, the Labor Dept Jolts index and the IBD/TIPP optimism index.

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

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