Disappointing Economic Data from the Euro Area and Japan

March 21, 2013

Risk appetite is down.  The Cypriot banking crisis continues to fester.  Preliminary Ezone PMI readings for March were troubling.  Japan posted a record customs clearance trade deficit, and its all-industry index fell more than 1% in January.  British retail sales and New Zealand GDP released figures were bright spots, however.

Equities in Europe have dropped 1.2% in France, 1.0% in Spain, 0.9% in Germany, 0.8% in Britain and 0.4% in Italy.

In the Pacific Rim, stocks rose 1.3% in Japan, whose market had been closed yesterday.  There were also gains of 0.8% in the Philippines, 0.6% in Singapore, and 0.2% in China and Taiwan but losses of 0.6% in Indonesia, 0.5% in India, 0.4% in South Korea, and 0.2% in New Zealand and Hong Kong.

The greenback has depreciated 1.1% against the kiwi, after New Zealand reported quarterly GDP growth of 1.5% (not annualized) in 4Q12.  That was about 40% greater than assumed.  On-year growth of 2.5% was the most in almost five years.

Otherwise, the dollar is up 0.5% against the yen, 0.2% versus the euro and 0.1% relative to the Swiss franc but down 0.5% against sterling and 0.2% versus the Australian dollar.  Australian Prime Minister Gillard has survived a leadership challenge within her own party.

Oil prices fell 0.6% to $92.87 per barrel of West Texas Intermediate.  Gold is unchanged at $1608.10 per ounce.

Japan’s 10-year JGB yield fell to a new low for the move of 0.58%, just 14 basis points above the 2003 low of 0.44%.  Spain had a set of successful auctions of 2-, 5- and 10-year paper.  The British gilt yield is two basis points higher, and the 10-year German bund is unchanged.

The closure of banks in Cyprus was extended through March 25.  If a bailout plan B isn’t hammered out by then, the ECB will end aid to Cypriot banks.  The Cypriot government is seeking support from Russia.

The Ezone composite purchasing managers index sank unexpectedly and significantly to a preliminary reading in March of 46.5 from 47.9 in February and 48.6 in January.  This result points to a loss of momentum even before the Cypriot crisis began, highlights a loss of momentum heading into the spring quarter, suggests that GDP fell about 0.3% in the first quarter, and strongly indicates that the regional recession will extend beyond midyear.  The ECB has been more optimistic and may have to reconsider its options.  Similar Ezone readings of 46.5 in manufacturing and 46.5 in services represent 3- and 5-month lows.

The French composite PMI scored a 42.1 in March, lowest in four years.  The manufacturing index of 43.9 was unchanged from February, but services sank 1.8 points to a 49-month low of 41.9, signifying an intense downturn.

Germany’s manufacturing PMI, which had poked above the 50 threshold for expansion in February, fell back below that line to a three-month low of 48.9.  The services PMI in Germany dropped by 3.1 points to a 4-month low of 51.6.  The composite PMI score of 51.0 was down from 53.3, its sharpest monthly drop since 2011 and constituting a 3-month low.

China’s preliminary purchasing managers index in manufacturing (according to HSBC) improved 1.3 points to 51.7.  The rise was greater than analysts were anticipating and marked China’s fifth consecutive score of over 50.

The seasonally adjusted Japanese trade deficit grew sharply to JPY 1.087 trillion in February, which is a record high, from an upwardly revised gap of JPY 737 billion in January.  Monthly import growth of 6.8% far surpassed a 1.3% rise in exports.  The unadjusted deficit was JPY 777 billion.  Imports were 11.9% greater than in February 2011, while exports dropped 2.9% on year.

Japan’s all-industry index, a supply-side proxy of GDP that is compiled monthly, fell 1.4% in January, nearly reversing all of December’s 1.6% increase and leaving January’s total 0.5% below the 4Q12 average level.  Weakness in January was concentrated in services.  The overall 1.4% decline was close to market expectations and translated into a 12-month decrease of only 0.5%.

Japanese supermarket sales fell by 5.5% between February 2012 and February 2013, which was a bigger on-year decline than January’s of 4.7%.  The Malaysian jobless rate fell 0.2 percentage points to 3.2% in January. Hong Kong posted a HKD 9.6 billion current account surplus last quarter, considerably less than that of HKD 23.8 billion in 3Q12.

Bank of Japan Governor Kuroda has set a 2-year deadline to achieve 2% inflation.  He wouldn’t say if the central bank Board plans an emergency meeting before its scheduled April 3-4 meeting to get started.

British retail sales shot up 2.1% in February and posted an on-year increase of 2.6%.  If one excludes automotive fuel, sales were 1.9% higher on month and 3.3% higher on year.  Britain’s public sector net cash requirement of GBP 1.54 billion last month was considerably smaller than anticipated.  The CBI’s monthly survey of British industrial trends produced a reading of -15 for March, a point lower than in February but marginally better than forecast.

Switzerland’s trade surplus of CHF 2.098 billion last month was almost as much as the CHF 2.12 billion in January.  Swiss M3 money growth of 9.8% on year in February was higher than January’s 9.4%.  Dutch unemployment ticked up to 7.7% in February from 7.5% in January.  Danish retail sales in February were 4.0% weaker than a year earlier, doubling their on-year drop of January.  The Greek current account deficit of EUR 222 million last month was less than half as much as in January. Spain’s trade deficit widened to EUR 3.5 billion in January from EUR 1.3 billion in December.

Scheduled U.S. data today include the index of leading economic indicators, existing home sales, the FHFA house price index, the Philly Fed manufacturing index, and weekly jobless insurance claims.  Canadian retail sales arrive, too.

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

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