Further Market Anxiety from Syria and as FOMC Meeting Nears

September 4, 2013

Several stock markets posted large overnight losses.  In the Pacific Rim, equites fell 2.2% in Indonesia, 1.0% in the Philippines, 1.3% in Singapore and 0.7% in Australia.  Hong Kong, China and Taiwan dipped 0.3%, 0.2% and 0.1%, while a 1.8% advance of India’s Sensex and a 0.5% rise in Japan’s Nikkei proved exceptions to the trend.  Losses thus far in Europe have been led by Italy (down 1.9%).  Stocks also have fallen by 0.9% in France, 0.7% in Spain and Germany and 0.6% in Britain.

The U.S. dollar slumped 1.2% against the kiwi and 1.1% versus the Australian dollar.  The greenback has lost 0.4% relative to the loonie and sterling but is unchanged since Tuesday’s close against the yen, yuan, and euro.  The Swissie slid 0.1%.

Markets continue to price in a decision to reduce Fed quantitative stimulus (QE) at the FOMC meeting on September 17-18, but there is considerable uncertainty regarding the size of the change and how much will be revealed about the future path of QE.  The 10-year German bund dipped a basis point, whereas the 10-year British gilt yield is a basis point firmer.  Higher Treasury yields are signaled, too.

Another source of market anxiety is the situation regarding U.S. retaliation against Syria’s alleged use of Sarin gas.  A Senate committee gave qualified support for U.S. action, and so did Republican Speaker Boehner.  It’s looking like a go.

Oil and gold prices fell 0.8% and 0.6% to $107.71 per barrel and $1403.80 per troy ounce.

Investors are combing through some meaningful economic data released overnight, including Australian and Ezone GDP and numerous service-sector purchasing manager surveys.

Australian GDP expanded 0.6% last quarter, a shade better than in the first quarter of 2013 and also a tad above analyst expectations.  There was a 0.1% uptick in Australia’s terms of trade (export/import price ratio), and personal consumption climbed 0.5%, further outweighing a reduced drop in investment.

The second estimate of euro area GDP growth, +0.3% in 2Q13, matched the preliminary figure, but the on-year contraction was revised downward to 0.5%.  The sources of second quarter growth were 0.1 percentage points each from personal consumption and government expenditures, 0.2 percentage points from net foreign demand, but a negative 0.1 percentage point from inventories.

  • Between the second quarters of 2012 and 2013, real GDP rose 0.5% and 0.3% in Germany and France, but negative on-year growth was posted of 5.2% in Cyprus, 4.6% in Greece, 2.0% in Italy and Portugal, 1.8% in the Netherlands, and 1.6% in Spain.

The Ezone composite purchasing managers index, 51.5 in August after 50.5 in July, suggests positive GDP growth in the third quarter of 0.2-0.3%.  The 51.5 reading is marginally lower than the flash indication but at a 26-month high.  The service-sector PMI, 50.7, was above the 50 no-change threshold for the first time since January 2012.  March saw the lowest point of 2013, a reading of 46.4.

  • Within Euroland, Ireland’s composite and service PMIs, respectively 57.6 and 61.6, represented the best readings in 77 and 78 months.  Germany’s 53.5 composite score and 52.8 service-sector PMI were at 7- and 6-month highs.  Spain’s 50.4 services PMI exceeded 50 for the first time since June 2011, and the composite Spanish PMI reading of 50.8 was at a 28-month high.  Italy’s services PMI ticked up to 48.8 from 48.7 in July, enough to lift the Italian composite reading to a 27-month high of 50.3.  Only France had a sub-50 composite score, 48.8 after 49.1 in July.  The French services PMI of 48.9 was the closest such has been to 50 in a year.
  • Euroland’s recession has ended, but the recovery is very mild and prone to stalling should there be a shock.  The ECB has no latitude to match Fed tightening.

Japan’s composite purchasing managers index improved to 51.9 in August from 50.7, and the services PMI climbed 0.6 points to 51.2.

China’s service sector PMI, as compiled by HSBC, rose to a 5-month high of 52.8 in August from 51.3 in both June and July.  Improvement was led by stronger orders.  The composite Chinese PMI rose to 51.8 after back-to-back sub-50 readings of 49.8 in June and 49.5 in July.

India’s PMI reports show an economy that is hurting.  The composite reading of 47.6 was down from 48.4 in July, 50.9 in June, and 52.0 in May.  The services PMI also reflected a second straight month of contracting activity with a reading of 47.6 after 47.9 in July.

Russia’s service-sector purchasing managers index climbed 3.1 points and more importantly rose back through 50 to 51.8.  The composite Russian PMI score, 51.4, conveys an economy that’s barely growing 1% and has very limited medium-term potential.

Hong Kong’s private-sector PMI stayed at 49.7 for a second straight month in August and has been below 50 since April.

Australia’s PSI-services index slid to a 4-1/2 year low of 39.0 in August on much faster declines in supplier deliveries and jobs.

Sweden’s PMI in services dipped to a two-month low of 53.7 from 56.6 in July.  Such had been below 50, however, in March-June.

Last but hardly least, Britain delivered another well-above-expected data point.  The service-sector U.K. PMI of 60.5 follows 52.9 in April, 54.9 in May, 56.9 in June and 60.2 in July.  Analysts were looking for a two-point decline and instead got the best reading since December 2006.  U.K. GDP is on course to exceed the second quarter’s solid pace in the third quarter. 

Ezone retail sales edged up 0.1% in July, which was less than forecast.  Sales were also 0.1% above the 2Q average but 1.3% weaker than a year earlier.

French producer prices climbed 0.7% on month and 0.3% on year in July.  Both increases were greater than predicted.

Romanian and Hungarian GDP each grew slightly between 1Q and 2Q and were respectively 1.5% and 0.5% above their 2Q12 levels.

British shop prices fell 0.5% in the year to August, matching July’s on-year decline.  Such was the fourth negative result in a row.

U.S. and Canadian trade data get released today.  The U.S. weekly chain store sales figures and monthly NAPM index, auto sales figures, and Beige Book also will be reported. 

Central banks in Canada and Poland are not expected to change their key interest rates after policy meetings today.

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

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