Share Prices Rise on Primary Results and Another Active Day on Central Banking Front

March 4, 2020

Share prices have climbed in Europe by at least 1.4% in Germany, Spain, Italy, Switzerland, the U.K. and France. U.S. futures are higher too.

The contest to decide the Democratic Party’s presidential nominee has revealed sharp regional, generational, ethnic divisions in the party. Biden won the South including Texas and Midwest; Sanders captured California, Colorado and Utah and has won earlier in Nevada. Biden appeals to older folks, Sanders to younger ones. Blacks favor Biden, while Latinos find Sanders’ style more to their liking. What has boiled down to a two-person race presents a very stark choice between radicalĀ  change from a polarizing revolutionary who will need the support of congress and the courts to push his agenda and a long-time political insider who prefers a more gradual and bipartisan return to America’s leadership image in the world. Biden’s strong showing on Super Tuesday only swings the pendulum back to neutral. Markets seem pleased, perhaps merely because investors weren’t ready to see such an important decision baked into the election story prematurely and no doubt also because Sanders is perceived as hostile to capitalism. The DJIA rebounded over 500 points (2%) in the first 15 minutes of trading, as investors sighed relief that Sanders had not virtually sealed the nomination as had been feared.

Several central banks including those in Hong Kong, Jordan, Kuwait, Saudi Arabia, Bahrain, the U.A.E., Macau, Moldova, Qatar, but not Poland have followed yesterday’s cue from the Fed and cut their interest rates. Yesterday’s action from the FOMC was one of very few times in the past 25 years when policy interest rates were changed between scheduled meetings. Even more seldom, in this instance, the surprise timing failed to support financial market confidence. Investors worry that monetary policy is not well suited to counter the coming economic drag from the coronavirus outbreak. They would rather see fiscal policy steps in this effort, but President Trump signaled his confidence in the economy and opposition to fiscal stimulus at this time.

The National Bank of Poland Monetary Policy Council did not cut its 1.5% reference interest rate after a scheduled policy review. The rate has been at 1.5% since a pair of 50-basis point cuts in January and March 2015. Inflation is running above target, and officials anticipate such continuing in the period ahead.

The Fed’s Beige Book of regional economic conditions in the United States will be published later today.

Share prices in Asia rose 2.2% in South Korea, 2.4% in Indonesia, 0.6% in China but just 0.1% in Japan. Australia’s equity market dropped 1.7% in spite of yesterday’s 25-basis point cut of the central bank’s official cash rate to a record low of 0.50%.

10-year sovereign debt yields fell 3 basis points in Japan and 2 bps in Japan. The 10-year U.S. Treasury yield is back under 1.00%.

WTI oil rebounded 1.7% on speculation that this week’s OPEC meeting in Vienna will authorize a cut in production. Gold is little changed.

The dollar climbed overnight by 0.5% against the euro, 0.3% versus the yen and 0.1% vis-a-vis the Aussie dollar but is down 1.0% against the peso, 0.2.% versus the kiwi, 0.5% relative to the yuan and 0.1% against the loonie. Sterling is steady.

Retail sales volume in the euro area rose 0.6% in January, maintaining December 1.7% on-year growth pace. German retail sales advanced 0.9% on month and 1.8% on year.

Italian GDP growth last quarter has been confirmed at the preliminary estimate of negative 0.3%, making such the weakest period since the first quarter of 2013. On-year growth slowed to 0.1% from 0.5% in the prior quarter, and average growth in 2019 of 0.3% represents a 5-year low.

Australian GDP grew by a faster-than-expected 0.5% last quarter, lifting the on-year pace by a half percentage point to 2.2%. On-year growth in the final quarter of 2018 had also been 2.2%. Australia’s construction purchasing managers index of 42.7 in February was still will below 50 but signals the slowest rate of contraction since October. Australia’s CBA-compiled services and composite purchasing manager indices printed respectively at a 1-year low of 49.0 and a record low in this data series the began in the spring of 2016.

Among other reported purchasing manager survey results reported today, there is ample evidence that at least Asia has been walloped by the coronavirus.

  • Japan’s services and composite PMI readings fell to 70-month lows of 46.8 and 47.0.
  • Hong Kong’s private PMI plunged to a record low of 33.1, indicating its weakest economy since at least mid-1998.
  • Singapore private PMI of 47.0 in February after 51.4 in January also represents a data series record low, meaning the weakest in at least 90 months.
  • Record lows not surprisingly also were set in China’s Caixin-compiled services and composite PMI. Not only did each print below the 50 no change threshold for the first time ever, but the readings of 26.5 and 27.5 attest to extraordinary weakness. A separate report revealed an 80% plunge in motor vehicle sales last month.
  • India, by contrast, recorded 85-month highs in its services and composite PMIs last month, which were well above 50 at 57.5 and 57.6, respectively.
  • South Africa‘s Standard Bank-compiled private PMI remained below 50 but rose 0.1 point to a 3-month high of 48.4.
  • Lebanon‘s private sector PMI rose 0.5 point to a 3-month high of 45.4. Such had dived earlier to a record low in November of 37.0.
  • Turning to Europe, the euro area composite PMI reading of 51.6 matched the preliminary estimate for February and represents a 6-month high despite a 2-month low in Germany’s index to 50.7. Ireland, Spain, France and Italy each had readings that were above those in January and above the 50 threshold. Euroland’s services PMI of 52.6 was a 4-month high. The data suggest that GDP this quarter is likely to rise in the euro area by about 0.2%, but an intensifying coronavirus threat clearly biases that trend downward.
  • Britain’s services and composite PMI readings of 53.2 and 53.0 were a tad below preliminary February estimates and represent 2-month lows.
  • Russia‘s services and composite PMIs in February printed at 85-month lows of 53.0 and 50.9.
  • Sweden‘s 56.7 service-sector purchasing managers index was considerably higher than January’s 53.2 reading and constitutes a 15-month high.

Swiss consumer prices ticked 0.1% higher in February, but the year-on-year inflation rate of -0.1% returned to the red for the first time since November.

Real GDP in Brazil grew 0.5% last quarter, and on-year growth accelerated 0.5 percentage point to a 2-year high of 1.7%. GDP growth in 2019 averaged 1.1%.

Labor productivity in Canada dipped 0.1% last quarter and was only 0.5% higher than a year earlier. Unit labor costs recorded a 3.6% increase versus a year ago.

ADP estimates that U.S. private-sector jobs rose 183k last month, a bit more than analysts were predicting.

Investors await the U.S. non-manufacturing PMI results and the Fed Beige Book release.

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

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