Less Risk Aversion

March 5, 2013

Most stock markets are higher, some strongly so like China (3.0%), Germany (2.1%), Italy (2.3%), France (1.9%), and Spain (1.8%).  Equities in Australia and Britain have risen 1.3%.  Stocks in India advanced 1.4%, and the DJIA is up 1.1% and trading above its record close of 14,165 hit in October 2007.  The Nikkei is up by a comparatively small 0.3%.

The Australian dollar has lost 0.5% against its U.S. counterpart as a dovish Australian policy statement that retained a possibility of a further rate reduction in the future outweighed Aussie data that in some cases surpassed expectations.

The greenback otherwise shows scant overnight change, ticking up 0.2% versus the loonie and 0.1% against the Swiss franc but edging down 0.1% against sterling, the yen, and yuan.  The euro and kiwi are unchanged against the dollar.

10-year sovereign debt yields are up by six basis points in the U.K., four bps in Germany, three bps in the U.S., and two bps in Japan.

Gold and oil prices have firmed by 0.2% and 0.3% but look heavy at $1574.70 per ounce and $90.43 per barrel.

The U.S. ISM non-manufacturing purchasing managers index printed 0.8 points higher at a 12-month peak of 56.0 in February.

The U.S. IBD/TIPP optimism index in March was hammered by the sequestration, dropping to a 15-month low of 42.2 from 47.5 in February.

Ezone service-sector and composite PMI readings for February were revised upward from their preliminary estimates.  There was a final reading of 47.9 in each case versus a flash indication of 47.3.  January’s readings had been at 48.6.  The composite Irish reading of 52.8, a 6-month low, embodied an 8-month low in services of 53.6.  Spain’s composite reading of 45.3 was a 2-month low.  Spain’s services PMI of 44.7 suffered its biggest month-on-month drop since September.  Italy’s 43.6 services PMI was a 7-month low, and its composite reading of 44.4 was a 3-month low.  France’s composite PMI of 43.1 was a 2-month high, as was the services reading of 43.7.  These very depressed scores nonetheless remove any doubt that Euroland’s second largest economy, which contracted in 4Q12, meets the textbook definition for recession. 

Germany’s final service and composite PMI readings of 54.7 and 53.3 were higher than preliminary estimates but a bit less than January’s scores of 55.7 and 54.4.  German GDP in the first quarter may post its fastest increase since the first half of 2011.  It still seems more likely that German will not provide enough demand to pull the euro area out of recession before midyear.

Ezone retail sales volume advanced by a greater-than-expected 1.2% in January, rebounding from a drop of 0.8% in December.  Sales in January were 0.8% higher than the 4Q average level and just 1.3% lower than in January 2012.

The last rate cut by the Reserve Bank of Australia was implemented in December.  No policy meeting took place in January, and this month like February saw monetary officials take a wait and see approach to observe the full stimulus of seven rate cuts since November 2011 but indicated that the policy bias remains in the direction of ease because of very subdued inflation and growth that’s apt to be a bit under trend.  See review.

Australia’s Performance of Services index, analogous to a purchasing managers index where 50 constitutes to dividing line between expansion and contraction, rose to an 8-month high of 48.5 last month from 45.4 in January, but such was below the 50 threshold for a thirteenth consecutive time.

Australia’s current account deficit narrowed a bit to A$ 14.678 billion in 4Q from A$ 15.048 billion in the third quarter.  Analysts were looking for a marginal widening of the gap.  Aussie retail sales increased 0.9% in January, most in seven months, after recording declines in both November and December.

In other purchasing manager surveys reported today,

  • China’s service PMI fell 1.9 points to 52.1 in February, according to HSBC.  The composite index printed at 51.4, lowest since October.
  • Sterling was helped by the British service-sector PMI of 51.8, a 5-month high, after 51.5 in January. British growth this quarter may be marginally positive after all.
  • Russia’s services PMI slid 0.4 points to 51.1, lowest since October.  It’s composite score of 50.2 signified an economy that’s going nowhere.
  • Hong Kong’s private sector PMI fell to a 3-month low of 51.2 from 52.5.
  • Sweden recorded a services PMI score of 54.6, up 2.2 points.  The krona rose in response.
  • India’s composite PMI settled back to 54.8, still a good reading, from 56.3.  The services PMI was 54.2, down from 57.5.
  • In the United Arab Emirates, the non-oil PMI printed at 55.4, showing the strongest production since May 2011.
  • Brazil’s composite PMI revealed decelerated growth with a score of 52.9, two points less than in January.  The services index dropped 2.4 points to 52.1.
  • Egypt’s non-oil PMI remained below 50 for a fifth straight month, printing a point higher at 46.0.
  • Japan’s service-sector PMI dipped 0.4 points to 51.1, but the composite PMI (50.2) stayed barely above 50 for a second straight time.

Japanese labor cash earnings recorded the first on-year advance (0.7%) in nine months.

The opposition Democratic Party of Japan, which still controls the upper house of parliament, indicated it will not support Iwata’s nomination to be BOJ deputy governor.  Iwata is even more dovish than Kuroda, the nominee for governor.

China’s government is targeting inflation at 3.5% this year, down from a 4% target used in 2012.  GDP is projected to grow 7.5% in 2013.

Filipino CPI inflation accelerated 0.4 percentage points to 3.4% in February, with a core rate of 3.8%.  Producer prices in the Philippines were 7.6% lower in January than a year before. Taiwan’s 12-month rise of consumer prices was 3.0% in February.

Same-store British retail sales posted their greatest on-year advance in February (2.7%) since April 2011 according to the British Retail Consortium.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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