Whipsawed by Fed, ECB, and Then U.S. Labor Statistics

May 3, 2013

It’s been a week full of surprises but ultimately accentuating Europe’s relatively dismal outlook.

The Fed on Wednesday left its policy guidance unchanged and affirmed the data-driven algorithms that will dictate future decisions.  While the ADP private jobs estimate that day was disappointing, new jobless insurance claims out Thursday of 324K, a 5-year low, and today’s Labor Department jobs report showing bigger-than-assumed 165K of additional workers in April, another dip of the jobless rate to 7.5%, and a 114K combined upward revision to employment growth in February-March has revised talk in the market that quantitative easing will be tapered back later this year.

But U.S. data released 90 minutes later were weaker than expected in keeping with the erratic pattern of data and events.

  • The U.S.. non-manufacturing purchasing managers index fell by 1.3 points to a reading of 53.1 in April.  The decline was three times greater than anticipated and accompanied by drops of 1.5 points in sales, 4.7 points in prices, and 1.3 points in jobs.
  • U.S. factory orders plunged 4.0% in March, twice as much as they had risen in February and 1.5 times more steeply than had been projected.

ECB monetary policy support is being stereotyped as too-little, too-late after yesterday’s decisions to cut the refinancing rate by only 25 basis points to 0.5% and do another long-term LTRO.  Nothing more dramatic was forthcoming such as outright quantitative easing like the Fed and BOJ are doing or a negative deposit rate, which instead was kept at zero percent.  One member of the ECB Governing Council, Nowotny, made hawkish remarks today even as the EU released downwardly revised Euroland 2013 growth forecasts of minus 0.4% overall, –0.1% for France, –8.7% for Cyprus, –1.5% for Spain, and –4.2% from Greece.  Euroland, whose economy has never before contracted in consecutive years, was also in recession during 2012.

Share prices in the Pacific Rim had declined earlier today by 0.8% in Japan and India, 1.4% in Indonesia, 1.1% in Malaysia, 1.0% in Singapore, and 0.7% in New Zealand.  That trend has reversed in Europe and North America where the Dow Jones is 1.1% higher (157 points and just 11 points from 15,000).  Stocks are 0.9% stronger in Canada and up by 1.6% in Germany, 1.2% in Spain, and 0.9% in Britain and France.

The dollar has strengthened 1.2% relative to the yen but lost 0.6% against the New Zealand and Australian currencies, 0.4% relative to the euro, and 0.3% vis-a-vis sterling. 

Ten-year sovereign debt yields are up nine basis points in the United States and 7 bps in Britain but unchanged in Germany and off 3 bps in Japan.

Oil prices shot up 1.4% and exceed $95 on WTI.  Gold is 0.2% firmer at $1471 per ounce.

The Reserve Bank of India’s repo rate was cut to 7.25% from 7.5%.  Previous reductions were made of 50 bps in April 2012, 25 bps in January 2013 and 25 bps in March 2013.  The easing addresses softer-than-desired growth but is being tempered by concerns over inflation in general and food price pressures in particular.

Australian producer prices climbed 0.3% last quarter and to an on-year pace of 1.6% from 1.0% in the year to 4Q12 and 1.4% in the year between 1Q11 and 1Q12.

Turkish consumer prices rose 0.4% on month and 6.1% on year in April, while producer prices were 0.5% lower on month and 1.7% higher on year.

Producer prices in the euro area dipped 0.2% in March, as the 12-month increase was halved to 0.7%.  Energy producer prices were unchanged from March 2012, while other producer prices increased by 1.0%.

Ireland’s service-sector purchasing managers index rose 2.9 points to a 3-month high of 55.2 in April, underscoring the resilience of that economy.

Norway’s manufacturing PMI dipped 1.1 points to 48.9, the second sub-50 reading in three months.

Britain’s service-sector PMI improved unexpectedly 0.5 points to 52.9.  This was the fourth straight result above the 50 threshold between expansion and contraction.  Chances of more Bank of England quantitative easing appear to be fading.

Australia’s service-sector PMI fell to a 4-month low of 44.1 from 49.6 in March.

China’s officially authorized service-sector PMI from the CFLP was at 54.5 last month, same as in February but down from 55.6 in March.  It’s been above 50 since March 2012.  Hong Kong’s whole economy PMI dipped under 50 with a reading of 49.9, the first such sub-50 result since last September.

Many of Euroland’s PMIs have been delayed by the May Day holiday earlier this week.  The service-sector figures will arrive early next week.  Yesterday’s manufacturing PMI’s showed a reading of 46.7 for the whole currency area, which was a four-month low.  Among reporting members, the German factory PMI was at a 4-month low.  Ireland’s was an 11-month low, and Austria’s was a 6-month low.  The Greek index, though only 45.0, was a 21-month high.  The Spanish, Dutch and Italian indices were at 2-month highs.  The French index was at a 4-month high but still very depressed at 44.4.  In the revised EU forecasts, France joins Slovenia, Cyprus, Greece, Portugal, Spain and Italy in having negative growth projected for 2013.

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

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