Fresh Risk Aversion

January 4, 2012

The German Dax and Paris Cac have declined so far by 0.8% and 0.9%. 

After dropping Tuesday, the dollar recovered today by 0.7% against the Swiss franc, 0.5% versus the euro and Australian dollar, 0.3% vis-a-vis the kiwi, sterling and loonie, and 0.1% against the yuan.  In a classic risk averse pattern, the yen edged 0.1% higher against the dollar.  The euro is again trading under $1.30, after crossing above that barrier yesterday.

Gold prices are steady at $1600.40 per ounce.  After Tuesday’s sharp incline, oil prices slipped 0.7% to $102.26 per barrel.

Stocks were mixed in the Pacific Rim.  Share prices fell 2.0% in China, 1.0% in Sri Lanka, 0.8% in Hong Kong and 0.4% in Pakistan and India, but they rose 2.1% in Australia, 1.2% in Japan, which reopened for the first time since December 30, 1.3% in Indonesia, 1.1% in Thailand, and 0.8% in Singapore.

The 10-year German bund and Japanese JGB yields firmed one basis point each, while the comparable British gilt yield dipped a basis point.  Euro debt crisis strains are hurting Turkey and Hungary.  Bank deposits with the ECB of EUR 453.8 billion constitute a new daily record high.

The Iowa caucus result left the Republican race as uncertain as ever, with Romney getting an 8-vote margin but Santorum, who also took 25% of the votes, receiving the all-important moral victory.  Ron Paul came in third place with 21% of the vote.

More purchasing manager survey results for December have been announced.

  • The British construction PMI improved 0.9 points to a two-month high of 53.2 but showed fragile sectoral confidence about the future.
  • JP Morgan’s world manufacturing index of 50.8 printed above 50 for the first time since August in December.  However, the 4Q mean of 50.2 was identical to the average third-quarter reading and signaled stall speed.
  • Euroland’s composite PMI score for December was revised to 48.3 from a preliminary 47.9.  This was the fourth straight month with a sub-50 index, implying a contraction of activity.  Italy’s composite score of 44.2 was at a 2-month low, and Spain’s 42.1 reading also signified deep recession.  The French economy with a 50.0 composite PMI is stagnating, and only Germany, with a composite 51.3 equal to a 4-month high, showed growth last month.
  • Euroland’s service-sector purchasing managers index printed at 48.8.  Although highest since September, such was the fourth straight sub-50 score.  Germany’s services PMI of 52.4 was at a 5-month high, but the Italian and Spanish indices of 44.5 and 42.1 reflected profound weakness.  The French services index of 50.3 followed three consecutive sub-50 readings.  Forward-looking elements of the Spanish and Italian surveys point to a continuing recession in the current quarter.  Italian new orders printed at their fastest rate of contraction since April 2009.  Severe fiscal austerity is being imposed on each of these economies, and the strategy is unlikely to produce desired deficit targets because of the collateral damage to economic growth.
  • India’s composite PMI of 54.7 was 2.4 points better than in November and the highest reading in five months.  India’s services PMI of 54.2 was also the strongest reading since July.
  • The United Arab Emirates PMI index sank to a four-month low of 51.7.
  • Sweden’s service-sector PMI rose 2.1 points to 50.9.  Officials at the Riksbank are not inclined to quickly cut interest rates a second time.

French consumer spending unexpectedly dipped 0.1% in November, producing a larger on-year decrease of 2.1% after a drop of 0.9% in the year to October.

According to preliminary indications, CPI inflation in the euro area slid to 2.8% in December following three straight on-year readings of 3.0%.  Inflation in calendar 2011 averaged 2.7% after starting the year with on-year increases of 2.3% in January and 2.4% in February.  The ECB targets the consumer price index and below, but close to, 2.0%.

Italian harmonized CPI inflation remained steady in December at 3.7%.  The national CPI index shows inflation of 3.3%. 

Romanian PPI inflation slowed to 7.9% in November from 8.4% in October. Icelandic PPI inflation dropped 4.4 percentage points to 8.4% in November.

British M4 money contracted 0.6% on month and 2.6% on year in November.  U.K. mortgage applications numbered 52,854 that month, a bit above expectations and 0.1% greater than in October.  Net mortgage lending, however, was weaker than forecast at GBP 0.6 billion. 

Japanese stock and bond transactions generated a JPY 769 billion capital outflow in the week of December 24 following a JPY 108 billion inflow in the prior week.  Thai CPI inflation slowed from 4.2% in November to 3.6% last month, with the core rate dipping to 2.7%.

A fairly meaningful U.S. data release schedule is on tap today, including factory orders, motor vehicle sales, and weekly mortgage applications and chain store sales.  FOMC minutes out yesterday afternoon indicated plans to publish the expectations of its members regarding the federal funds rate’s future path and the likely timing of a first rate hike.  The U.S. services PMI results are due Thursday.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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