A Weak Yen and Lackluster PMI Reports

April 22, 2016

The yen has declined 1.0% on balance against the dollar on unconfirmed reports that the Bank of Japan will announce fresh stimulus next week including the expansion of sub-zero interest rates to its lending to banks.

Against other currencies, the dollar lost 0.5% against sterling and by 0.2% relative to the loonie and Aussie dollar.  Sterling benefited from opinion polls suggesting British voters will choose to stay in the European Union.  The dollar alternatively rose 0.2% versus the yuan and 0.1% vis-a-vis the euro but is unchanged relative to the Swiss franc.  Investors are more confident that the Fed will raise interest rates this year following yesterday’s news of the lowest U.S. new jobless insurance claims in 42-1/2 years.

The 10-year German bund and British gilt yields settled back a basis point.  Japan’s JGB is steady.

Gold and oil are 0.1% softer at $1,246.99 per ounce and $43.28 per barrel.

European equities are lower led by the auto industry.  Stocks have lost 0.8% in the U.K., 0.5% in Switzerland, 0.3% in Italy and German y and 0.2% in France.

Japan’s Nikkei rallied 1.2%, but in some other Pacific Rim markets, equities fell 1.1% in Hong Kong, 0.7% in Singapore and Australia, 0.8% in New Zealand, 0.4% in Taiwan, 0.3% in South Korea, and 0.2% in India.  The Shanghai composite index edged up 0.2%.

Investors got their first peak at April purchasing manager survey results.

  • Japan’s manufacturing PMI slumped 1.1 points to a 39-month low of 48.0.  In the wake of dual earthquakes, the index is liable to stay below 50 in coming months.
  • Euroland’s composite PMI edged down 0.1 to a 2-month low of 53.0, suggesting underlying GDP growth of around 0.3% at the start of 2Q.  Manufacturing also hit a 2-month low, while services edged up 0.1 point to a 2-month high.
  • The German composite purchasing managers index of 53.8 in April was a 9-month low, reflecting an 8-month low in services of 54.6 but a 3-month manufacturing high reading of 51.9.
  • France is Euroland’s weak link at the moment.  It’s composite PMI of 50.5, though a 5-month high connotes stagnation, and manufacturing there sank to an 8-month low of 48.3, implying a factory sector recession.

The MNI Chinese business sentiment index improved to a 3-month high of 50.5 in April after readings of 49.9 in the prior two months.

Japan’s tertiary index, a gauge of service sector activity, edged 0.1% lower in February.  January-February combined rose 0.1% versus the average level in 4Q15 and by 1.2% on year.

Italian retail sales rose 0.3% on month in February, and the 12-month change bounced up to 2.7% this leap year from -0.8% in January.  Italian industrial orders increased 0.7% on month and 3.8% between February 2015 and February 2016.

Irish PPI deflation ballooned to 3.3% in March from -0.3% in December and an on-year increase of 1.3% in January.

Eurozone finance ministers will be meeting today.  Central bank policy meetings are scheduled next week in the United States, Japan, Russia and New Zealand.

Canada releases retail sales and CPI data, while Markit Economics will report its preliminary manufacturing PMI survey results for the United States.  Five states led by Pennsylvania hold primaries next Tuesday.

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

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