Continuing Resurgence of Equities and a Moderately Stronger Dollar, Too

February 5, 2020

Share prices climbed overnight by another 1.3% in China, 1.2% in Japan, 1.4% in Singapore, 1.0% in Indonesia and 0.9% in India and New Zealand. European gains thus far amount to 1.4% in Germany, 1.5% in Spain, 0.9% in France, and 0.6% in Great Britain. In the U.S., the DJIA is 1.1% higher, currently, and back above the 29,000 threshold.

The dollar appreciated overnight by  0.4% against the euro, 0.3% relative to sterling and the Swiss franc, and 0.2% vis-a-vis the yen. It also lost modest ground against the Aussie dollar and Chinese yuan.

Ten-year sovereign debt yields climbed three basis  points in the U.S., Germany, Britain, France and Italy.

WTI oil soared 3.4%. Gold is 0.4% stronger.

Final results of the Iowa Democratic  Party caucus are still unreported, but with 72% of precincts tallied, Buttigieg holds a narrow lead with 26.8% support, followed by Sanders’ 26.2%, and Warren’s 18.4%. The State of the Union Address elicited the vastly fragile state of American society.

More purchasing manager survey results from January got reported:

  • The Institute of Supply Management’s non-manufacturing PMI rose 0.6 points to a 5-month high of 55.5, and the IHS-compiled service sector and composite PMI readings of 53.4 and 53.3 were both at 10-month highs.
  • Euroland’s service sector PMI slipped 0.3 points to a 2-month  low of 52.5, but the group’s composite PMI (51.3) represents a 5-month high. Ireland, Germany, and Italy had higher composite readings last month than in December, while the French and Spanish scores were somewhat lower. All those economies had readings above the 50 threshold that indicates improved economic conditions. The data are consistent with euro area GDP growth at the start  of 2020 of some 0.2% but not above.
  • British PMIs in January reflect a significant boost from Brexit clarification. Both the services reading of 53.9 and the composite score of 53.3 mark 16-month highs.
  • China’s PMI readings of 51.8 on service sector activity and 51.9 composite represent 3- and 4-month lows.
  • The Japanese service and overall PMIs of 51.0 and 50.1 signify 4-month highs, in contrast.
  • India’s service sector PMI in January printed at 55.5, most since January 2013, and the composite reading of 56.3 also was at a 7-year peak.
  • The CBA-compiled Australian PMIs, 50.6 on services and 50.2 for both services and manufacturing combined, are 4-month highs.
  • Russia’s readings of 54.1 and 52.6 show the fastest growth since November.
  • Brazil’s services and composite readings of 52.7 and 52.2 reflect 10- and 4-month highs for South America’s biggest economy.
  • South Africa’s Standard Bank-compiled private PMI rose to a 2-month high but remained under the 50 threshold at 48.3.
  • Private-sector PMI scores for Singapore of 51.4 and Hong Kong of 46.8 were at 8- and 7-month highs.

Retail sales volume in Euroland tumbled 1.6% on month in December, most since March 2008, and recorded the smallest 12-month rate of increase (1.3%) in seven months. Sales growth averaged 2.2% in calendar 2019.

Consumer confidence in Spain jumped almost ten  index points to a 6-month high of 87.2 in January.

Switzerland’s consumer climate index printed at a one-year high in the first quarter of 2020 with a value of -7.

Real GDP in Indonesia contracted 1.7% on quarter in 4Q19 and rose on year by a sub-targeted 4.97%. Growth in 2019 averaged 5.02%, the weakest calendar year since 2015.

New Zealand’s jobless rate fell 0.1 percentage point to 4.0% last quarter. Labor costs rose 0.6% and were 2.4% greater than in the final quarter of 2018.

The Central Bank of Iceland as expected cut its 7-day term deposit rate by 25 basis points to 2.75%. A total of six 25-bp cuts were enacted during 2019. In a released statement, members of the Monetary Policy Committee cut their projected 2020 growth rate in half  to 0.8%, observing weak exports and tighter financial conditions. Total and core inflation have fallen.

The Bank of Thailand also eased monetary policy today, cutting its one-day repo rate by 25 basis pints to 1.05. This move follows 25-bp cuts done last August and November. A released statement also announces a substantial downward revision of projected growth this year, which they attribute to the coronavirus outbreak, a delayed passage of budget spending, and on ongoing drought. Sub-target inflation is expected to continue throughout the  policy forecast time frame.

The National Bank of Poland kept its one-day repo interest rate unchanged a record low of 1.5%, where such has been since a  pair of 50-basis point cuts in January and March of 2015. In doing so, officials ignored a recent acceleration of CPI inflation to a 7+ year high of 3.4%. They expect inflation to recede not immediately but eventually.

The U.S. goods and services trade surplus widened 11.9% on month in December to $48.88 billion. The full-2019 deficit of $627.7 billion was only 1.7% less than in 2018 and embodied declines in both exports and imports. Bilateral merchandise trade deficit widened last year against Canada, Mexico, Europe, and Japan. The deficit with China narrowed 17.6%, and the balance against OPEC swung from as $20.9 billion deficit in 2018 to a surplus of $5.55 billion.

Canada experienced its smallest trade deficit (C$370 million) in December since January 2016.

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

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