Risk Aversion Fanned by Preliminary March PMI Readings

March 22, 2012

In Europe, share prices have tumbled 1.5% in Paris, 1.4% in Germany, and 0.9% in Britain.  There were some big tumbles in the Pacific Rim including drops of 1.4% in Thailand, 2.3% in India, and 0.9% in Singapore.  But equities rose 1.0% in Taiwan, 0.5% in Australia and 0.4% in Japan.  Chinese stocks dipped 0.2%.

The dollar and yen are stronger, a typical risk averse configuration.  The dollar lost 0.5% against the yen but advanced by 0.8% relative to the New Zealand and Australian currencies, 0.4% versus the loonie, euro, Swissie, and sterling.  The Chinese yuan rose 0.3% against the greenback.

Oil and gold prices slumped 1.2% and 0.8% to $106.00 per barrel and $1637.50 per ounce.

Ten-year German bund and British gilt yields fell by five and four basis points.  The 10-year Japanese JGB is a basis point higher.

Preliminary purchasing manager survey results for March from Euroland and China were both disappointing.

  • China’s HSBC-compiled factory PMI score of 48.1 was a four-month low and down from 49.6 in February.  Readings below 50, as with all PMIs, connote contracting activity.  The PMI in 1Q12 averaged 48.8 after a mean of 49.1 in the final quarter of 2011.  The jobs subcomponent was at a 36-month low. New orders contracting at a faster pace than in February.  This report arrives amid mounting concern that China is in a hard landing.
  • Euroland’s composite PMI of 48.7 after 49.3 in February and 50.4 in January suggests that GDP has declined for a second straight quarter, confirming a regional recession.  The manufacturing PMI dropped 1.3 points to 47.7, a 3-month low and had a production component (48.8) that was 1.5 points lower than in February.  The services PMI dipped 0.1 points to 48.7, a 4-month low.  Analysts had anticipated slightly higher scores in March but ones still south of the 50 breakeven level.  The German and French PMI readings were also weaker than anticipated.
  • Germany’s composite PMI of 51.4 was 1.8 points below February’s reading.  Manufacturing fell 2.1 points to 48.1, a 4-month low.  Services, at 51.8, also was at a 4-month low.  German GDP growth in 1Q was barely positive at best.
  • The French composite PMI of 49.0 was the first sub-50 score since November and suggests that French GDP may have slipped slightly in the current quarter.  Services stayed at 50.0, but manufacturing dropped 2.4 points to 47.6.  Manufacturing production contracted at the fastest pace in 7 months.

The yen extended its recent advance against the euro.  Not only were the above European indicators worrisome, but also Japan announced a customs clearance trade surplus for the first time in five months.  Such was small, nonetheless, at JPY 33 billion (about $0.4 billion).  Moreover, the seasonally adjusted trade position remained in deficit (JPY 313 billion) after January’s shortfall of JPY 494 billion.  Japanese exports to China plunged 13.9% on year, another sign that all is not well with the Chinese economy.

Japanese supermarket sales in February were 0.3% higher than a year earlier after having posted a 1.2% drop between January 2011 and January 2012.

New Zealand reported a 0.3% increase in GDP last quarter, half as much as forecast and down from a 0.7% rise in 3Q11.  Manufacturing tumbled 2.5% on quarter.  Real GDP rose 1.8% on year, the same increase that occurred between the third quarters of 2010 and 2011.

The Central Bank of the Republic of China (Taiwan) let another quarter pass without hiking its 10-day rediscount rate by 12.5%.  It had been doing such until September but also left policy unchanged in December.  The benchmark rate stands at 1.875%. 

CPI inflation in Hong Kong slowed to 4.7% last month from 6.1% in January.  Hong Kong’s current account surplus narrowed 41% to HKD 20.1 billion in 4Q11.

British retail sales dropped twice as much as expected last month, falling 0.8% in volume terms and recording a 12-month increase of just 1.0%.  In the three months to February, sales rose 0.7% and 1.7% on year.  Retail sales volume had also risen 0.7% in the three months to November after dropping 0.3% in the three months to August 2011.

Danish consumer confidence improved 4.4 points to a reading in March of minus 0.4.  Switzerland’s trade surplus of CHF 2.68 billion in February was 49% bigger than projected and considerably larger than January’s surplus of CHF 1.5 billion.

Scheduled U.S. data releases today include weekly jobless insurance claims and consumer comfort and monthly readings on the FHFA house price index and the index of leading economic indicators.  Fed Chairman Bernanke presents his second college lecture, and three other high Fed officials (Evans, Bullard and Tarullo) also have public speaking engagements.

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

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