Ugly Start to a New Year

January 2, 2019

In the first session of 2019, stock markets slumped 3.1% in Hong Kong, 1.8% in Taiwan, 1.6% in Australia,, 1.5% in South Korea and Vietnam, 1.2% in China, and 1.0% in India and Singapore. There was mercifully no trading in Japan or New Zealand due to holiday closures. In Europe where the Swiss market was also closed, equities are so far down 1.4% in France, 1.1% in Greece, 1.0% in Italy and Spain, 0.6% in the U.K., but just 0.2% in Germany.

Manufacturing purchasing managers indices reported today added to concerns about global growth that had depressed markets in December. In a further sign of such worries, ten-year sovereign debt yields are down today by 8 basis points in the U.K. and Germany, 7 bps in the Netherlands, 6 bps in France and 3 bps in U.S. Treasury futures.

Likewise, West Texas Intermediate crude oil sank 0.9% so far to $45.01 per barrel, and gold moved 0.5% higher in spite of a mostly strengthening dollar.

The dollar rose overnight by 0.7% against sterling, 0.6% relative to the Australian dollar, 0.4% versus the euro, 0.3% vis-a-vis the kiwi, 0.2% against the Swiss franc and 0.1% relative to the Mexican peso. On a softer note, the dollar is unchanged against loonie and down 0.3% versus the yuan and 0.4% against the yen.

Both the privately-compiled Caixin Chinese manufacturing PMI and the Chinese government-compiled factory PMI survey for December produced sub-50 readings, implying a contraction. Caixin’s measure dropped 0.5 index points to a 19-month low of 49.7, while the government’s manufacturing PMI fell 0.6 pints to 49.4. The non-manufacturing government PMI reading of 53.8 was 0.4 points higher than November’s score, but the overall composite PMI dipped to 52.6 in December from 52.8 the month before.

Elsewhere in Asia,

  • Taiwan’s purchasing managers index in manufacturing┬álast month recorded a third straight sub-50 score, dropping 0.7 points to a 39-month low of 47.7.
  • Vietnam’s 53.8 PMI reading was 2.7 points lower than in November and at a 3-month low.
  • The Malaysian PMI sank 1.4 points to a series low of 46.8, indicating the fastest rate of contraction in manufacturing since at least mid-2012.
  • India’s manufacturing PMI fell 0.8 to a 2-month low of 53.2, and the Filipino PMI declined a full 1.0 point to a 3-month trough of 53.2.
  • Higher PMI readings for December were announced for Indonesia (a 4-month high of 51.2), South Korea (a 2-month high of 49.8), and Thailand (a 6-month high of 50.3), but the rate of expansion was weak in each of these instances.

Australia’s CBA-compiled manufacturing PMI fell 0.6 points to a 3-month low of 54.0.

Euroland’s manufacturing PMI reading of 51.4 matched its preliminary estimate for December and signified the weakest expansion rate since February 2016. Moreover, business confidence about the future weakened to a six-year low, and the quarterly PMI average in 4Q18 was the lowest since the second quarter of 2013.

Among reported members of the euro area, manufacturing PMI readings declined to a 33-month low of 51.5 in Germany, a 28-month low of 51.1 in Spain, a 27-month low of 49.7 in France, a 9-month low of 54.5 in Ireland, and 2-month lows of 53.8 in Greece and 53.9 in Austria.

Russia posted a 2-month low manufacturing purchasing managers index of 51.7 and a 4-month low in its service-sector PMI of 54.4, causing that economy’s composite PMi to sink 1.1 points to a 3-month low of 53.9.

The Polish PMI for manufacturing traced an intensifying contraction with a 68-month low of 47.6 in December following 49.5 in November and 50.4 in October.

Eastern Europe’s weakness was exemplified further by a swing in the Czech manufacturing PMI to a sub-50 score of 49.7 (a 29-month low) from 51.8 the month before.

Britain’s manufacturing PMI survey was among the few bright spots, rising another 0.6 points to a six-month high of 54.2 in December. And Denmark scored a 4-month high in its manufacturing PMI with a 58.1 reading.

But Norway’s PMI fell 0.3 points to a 3-month low of 55.9.

And Brazil’s PMI reading in December dipped marginally to a 2-month low of 52.6.

Another important generalization common to most of today’s reported PMI surveys was a significant deceleration of inflationary pressure, no doubt related in part to the sharp slide in world energy costs.

Singaporean real GDP rose only about half as much last quarter as was expected, which dampened on-year growth to a 9-quarter low of 2.2% there.

Indonesian CPI inflation eased 0.1 percentage point to a 3-month low of 3.13% in December, but core CPI picked up marginally.

South Korea’s trade surplus narrowed to $70.5 billion in 2018, as import expansion of 11.8% was roughly twice as rapid as the 5.5% increase of exports. The December surplus of $4.56 billion was down from $4.93 billion in November, $5.3 billion in December 2017, and indeed the smallest surplus in 10 months.

Turkey’s trade deficit of $651 million in November was far smaller than that of $6.4 billion a year earlier.

Investors await the U.S., Canadian, and Mexican PMI releases. On Monday, the Dallas Fed monthly manufacturing index was reported at the weakest level since mid-2016 after having unexpectedly dived below zero to a reading of -5.1 in December from +17.6 in November and +29.4 in October. Trade wars hurt everybody, and the fuss over immigration doesn’t help, either. The continuing U.S. federal government shutdown also adds to the dysfunctional image that America is projecting.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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