Some Weaker-Than-Expected European Data

February 21, 2018

Preliminary February purchasing manager survey estimates from the euro area and the latest British labor statistics were softer than forecast. The next significant market-moving event will be the release of FOMC minutes at 19:00 GMT today.

The dollar rose 0.4% against the Aussie dollar and sterling, 0.2% relative to the loonie and 0.1% versus the euro and yen but is unchanged from Tuesday’s close vis-a-vis the Swiss franc, yuan and kiwi.

Some Asian stock markets experienced big advanced today such as Taiwan (2.8%), Hong Kong (1.7%), New Zealand (1.7%) and Singapore (1.1%). Other markets barely advance like Japan’s (0.2%) and Australia’s, which edged 0.1% higher. Today was the last day of China’s closure due to the Lunar New Year.

European equities have faltered 1.0% in Italy, 0.8% in Greece, 0.5% in Germany, 0.4% in Switzerland, 0.6% in Italy and 0.2% in France.

Ten-year sovereign debt yields settled back 3 and 2 basis points in the U.K. and Germany and by a single basis point in Japan and the United States.

West Texas Intermediate oil slipped 0.7% to $61.36 per barrel. Gold is hardly changed.

Australian wage costs rose 0.6% last quarter and recorded a 2.1% on year advance, up from on-year growth of 2.0% in 3Q17 and 1.9% in the prior four reported quarters.

A sharp 15.7% upsurge in Australian construction work done in the third quarter of 2017 was reversed by a 19.4% slump in the fourth quarter, leaving such 4.6% higher than in the final quarter of 2016. The Westpac index of Australian leading economic indicators fell 0.2% in January, marking the first monthly decline since August and the largest drop in just over two years.

The ILO-basis British jobless rate increased last quarter for the first time in two years, edging up 0.1 percentage point to 4.4%. Average worker earnings growth of 2.5% between 4Q16 and 4Q17 remained subdued and lower than CPI inflation. The U.K. posted a larger public sector surplus in January than a year earlier; the fiscal year public sector borrowing requirement is running almost 7.5% below the year-earlier pace and seems likely to undershoot what had been budgeted.

Reported purchasing manager indices in February for the euro area, Germany, and France, based on roughly 85% of all the information that will be collected eventually, signaled a slower rate of expansion in manufacturing, the service sector, and overall economic activity. Nonetheless, the findings remained historically high. They are consistent with first-quarter GDP growth in Euroland and Germany of about 0.9% and do not suggest an inflection point, since business sentiment regarding the period ahead stayed very strong. To wit, Euroland’s composite PMI fell 0.8 points to 57.5, a 3-month low, and Germany’s composite index of 57.4 was 1.6 points below the January level and also at a 3-month low. France’s composite PMI of 57.8 was down from 59.6 the month before and at a 4-month low.

Dutch consumer confidence slipped for a second straight month in February to a 3-month low.

Japan’s manufacturing PMI dropped 0.8 points to 54.0 in February, a two-month low. The report suggests that further yen appreciation would create an unwanted drag on inflationary pressures.

IHS Economics has published a preliminary U.S. purchasing managers survey for February whose findings are consistent with more aggressive Fed policy normalization than officials were imagining late last year. The composite PMI leaped 2.1 points to 55.9, best since November 2015 and was accompanied by a 33-month high in business sentiment, a near 3-year high in growth of new business, and an intensification of inflationary pressure especially in manufacturing. The data suggest that GDP growth will be moving back above 3.0%.

On a lighter note, U.S. existing home sales unexpectedly declined 3.2% last month.

South African total and core CPI inflation slowed a bit in January to 4.4% and 4.1%, respectively. The country’s budget was received well, and the rand appreciated today.

South Korean PPI inflation decelerated a percentage point to 1.2% in January.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

Tags: , ,


Comments are closed.