Regional Themes

January 24, 2020

Asian market activity was depressed by Chinese New Year holiday observances. Equity markets were shut in China, Singapore, Hong Kong, Vietnam, South Korea, and Taiwan. That being said, fears and anger related to the coronavirus outbreak have intensified. Some 40 million people in China have been quarantined.

In other Asian news, Japanese CPI inflation ended 2019 on an up-note. The overall on-year pace accelerated to 0.8% from 0.5%. Excluding fresh food, consumer prices were up 0.7%, a 2-month high, versus 0.5% in November. And consumer prices excluding fresh food and energy went up to 0.9% from 0.8%. Although minutes from the Bank of Japan’s December Board meeting painted a weak economic outlook in the wake of October’s tax hike and amid continuing weak growth in Japan’s export markets, the preliminary Japanese purchasing managers surveys from January improved to a 5-month high of 49.3 in manufacturing and a 4-month high of 52.1 for service sector activity. The overall composite PMI printed at a 4-month high of 51.1 following three months below the 50 barrier between contraction and improvement.

The Japanese Nikkei edged up 0.1%, while the yen dipped 0.1% overnight against the dollar. The 10-year JGB yield held steady after dropping Thursday to -0.03%.

Europe’s theme of the day stemmed from better-than-expected preliminary purchasing manager survey results.

  • Euroland’s composite PMI in January remained at December’s 4-month high of 50.9, but the good news in this release is a 9-month high in the manufacturing PMI of 47.8. That’s a full point better than forecast and compares to 46.3 in December and 45.7 last September. The subindex for factory orders was at a 14-month high, and business sentiment improved. The U.S.-Sino trade accord was a positive factor.
  • According to preliminary British PMI data, that economy benefited also from lessening trade concerns but even more so from receding political uncertainty. The U.K.’s composite PMI of 52.4 in January following 49.3 in December and 45.0 in October constitutes a 16-month high. The services PMI was also at a 16-month high, while manufacturing climbed to a 9-month peak.
  • The improved landscape in the euro area was led by Germany, whose composite PMI printed at a 5-month high of 51.1. Manufacturing’s PMI rose 1.5 points to an 11-month high of 45.2, and services went up 1.3 points to a 5-month high of 54.2. Business sentiment was the best in 16 months.
  • The French composite PMI also exceeded the threshold of 50, but at 51.5 such was at a 4-month low. Services also fell to a 4-month low, while manufacturing printed at a 2-month high.
  • One note of concern in the Euroland PMI news was that outside of Germany and France, the rest of the common currency area experienced economic conditions near stagnation during January.
  • The ECB meanwhile released its latest quarterly survey of professional forecasters, who as a group project inflation of 1.2% this year, 1.4% in 2021, and 1.5% in 2022 along with GDP growth of 1.1% this year, 1.2% in 2021 and 1.4% in 2022.
  • European share prices have rallied today so far by 1.6% in the U.K., 1.5% in Germany, 1.4% in Italy, 1.2% in Spain, and 0.9% in Switzerland.

In North America, the Trump impeachment trial has gotten nastier and more partisan. Although the Democrats have presented a comprehensive and compelling case, their wish to call additional witnesses like John Bolton has been effectively rebuffed. President Trump’s loyal base has been energized behind their man. If America is indeed at an inflection point between rule-of-law democracy and rule-of-man authoritarianism, it is only a matter of time before the dollar’s dominance of international trade and finance begins to unravel. An briefing in last week’s Economist documents the many ways that U.S. adversaries like China, Iran, and especially Russia are already attempting to wean themselves away from dollar dependency.

Among commodity prices, those of WTI oil and Comex gold are down 0.3% and 0.4%.

The dollar overnight firmed 0.3% against sterling and the Swiss franc, 0.2% relative to the euro and peso, and 0.1% vis-a-vis the yen and loonie, but it has settled back 0.5% versus the yuan and 0.2% against the kiwi.

New Zealand consumer prices rose 0.5% last quarter, lifting the on-year inflation rate to a one-year high of 1.9%.

Industrial production in Singapore recorded an on-year decline of 0.7% in December, which is roughly as analysts were expecting.

Producer prices in Spain ended 2019 1.9% lower than a year earlier, which was the smallest 12-month rate of decline in five months, whereas Icelandic producer prices dropped 1.0% between December 2018 and December 2019.

Czech consumer confidence slumped 5.2 index points to a 64-month low in January, and business sentiment in that country printed at a 2-month low of 96.7 versus 102.0 last February.

Canadian retail sales rebounded in November by 0.9% after declining 1.1% in October, but the bulk of that bounce involved a 3.0% advance in sales of motor vehicles and parts. Excluding those, sales went up just 0.2% on month. Also, overall retail sales in November were unchanged from October.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

 

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