Equity Market Volatility Picks Up
February 8, 2018
It’s been another difficult day for equities. Today’s session started fine enough, with gains of 1.0% in India, 0.5% in South Korea where the Winter Olympics are getting under way, and 0.4% in Hong Kong. These up-moves balanced declines of 0.4% in Japan and 1.4% in China where a considerably smaller trade surplus for January was reported. After the Bank of England released a more hawkish statement than expected, implying 3, not 2, rate hikes ahead and sooner than thought previously, trading in Europe went south, with drops so far of 1.4% in Germany and italy, 1.0% in France and 0.8% in Great Britain. The DOW fell at the open.
10-year sovereign debt yields have risen 10 basis points in the U.K., 6 basis points in Germany and 4 bps in the United States. Gold and oil have slipped 0.3% and 0.6% today.
Several central banks spoke publicly overnight. Bank of Japan Board member Suzuki warned that policy stimulus might need to be reined in if it becomes apparent that its costs exceed its benefits, but that point is not yet at hand. ECB Governing Council member Praet is not overly concerned about financial market volatility but said rising inflation might not be a sufficient condition to end monetary support because doing so prematurely could endanger inflation’s return to target. Dallas Fed President Kaplan and San Francisco Fed President Williams aren’t worried about volatile financial markets.
The’s dollar’s most significant move of the day has been a 1.0% drop against sterling. The U.S. currency is also down 0.3% versus the Swiss franc and 0.1% relative to the yen and euro but has advanced 0.7% against the yuan, 0.3% vis-a-vis the peso and Australian dollar and 0.1% versus the kiwi.
China’s trade surplus plunged to $20.34 billion in January from $54.69 billion in December. Exports (36.9%) and imports (30.2%) were much greater than in January 2017 due to distortions related to the Lunar New Year happening later this year than last.
Japan’s current account surplus of JPY 797 billion in December was 28.5% smaller than a year earlier, reflecting a 14.6% on-year rise in merchandise imports versus an 8.8% increase in exports. The full-2017 surplus of JPY 21.87 trillion was somewhat greater than that of JPY 20.34 trillion in 2016.
Likewise, Germany recorded similar current account surpluses in 2017 of EUR 257.1 billion and 2016 of EUR 259.3 billion. Germany’s merchandise trade surplus on a seasonally adjusted basis was EUR 21.5 billion in December versus monthly averages of EUR 20.4 billion in 2017 and EUR 20.7 billion in 2016.
Japan’s economy watchers index unexpectedly dropped 4.0 points to an 8-month low of 49.9 in January. Japanese bank lending was 2.4% higher in January than a year earlier. There were 4.95% more bankruptcies than in January 2016.
The parade of central bank policy meetings continued. Most prominently, while leaving settings unchanged including a 0.5% British Bank Rate, the Bank of England’s Monetary Policy Committee revised projected GDP growth for this year up by 0.2 percentage points and judged “that, were the economy to evolve broadly in line with the February Inflation Report projections, monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November Report, in order to return inflation sustainably to the target.”
Brazil’s monetary policy committee, Copom, cut its Selic Rate by 25 basis points to 6.75%. That was half the size of the previous reduction in December. (See my review.)
Policymakers at the Reserve Bank of New Zealand left their Official Cash Rate unchanged at 1.75%, its level since a 25-basis point reduction in November 2016 (see review).
The National Bank of Serbia’s policy rate of 3.5% was also retained. In-target inflation is projected for the coming two years.
The Monetary Board at Bangko Sentral ng Pilipinas kept its overnight reverse repo rate unchanged at 3.0%. Other policy settings were also retained at their current levels. Back on June 3, 2016, bank officials lowered the key overnight rate to 3% from 4% and shifted to an interest rate corridor of 3-4% from a single point target.
The Royal Institute of Chartered Surveyors British house price balance stayed steady at 8% in January.
The Bank of France is projecting 0.4% quarterly French GDP growth this quarter. While its January manufacturing sentiment index fell back 2 points to a reading of 105, the services sentiment index stayed at 103, its highest level since May 2011. Sentiment in construction also was the same as in December.
In the year between December 2016 and December 2017, Turkish industrial production and retail sales went up by 8.7% and 5.4%. Spanish industrial production advanced 6.1% in the same span, but South African factory output climbed only 1.1%.
On-year CPI inflation in January stood at 5.55% in Mexico, 2.86% in Brazil and 1.5% in The Netherlands.
New U.S. jobless insurance claims fell back 9K to a very low 221K last week. Canadian housing starts were unchanged on month and 3.3% greater on year in January. Monetary officials are also holding policy reviews today in Mexico and Peru.
Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: China trade balance, French business sentiment, German current account, Japanese current account
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