Investors Less Risk Averse Than on Monday

March 4, 2014

Russia’s military exercise has ended, but about 16,000 of its troops remain in Crimea. 

Stock markets that were hard hit yesterday have rallied on hope that the Ukraine conflict won’t degenerate further and that war with Russia can be avoided.

In Europe, equities have risen 2.6% in Italy, 2.3% in Germany, 2.5% in France, 1.8% in Spain, 1.7% in Switzerland and 1.6% in Britain.

Share prices closed in the Pacific Rim with gains of 1.3% in India, 0.7% in Hong Kong, 0.6% in Singapore, 0.5% in Japan and New Zealand, 0.4% in Indonesia, and 0.3% in Australia but losses of 0.6% in Taiwan, 0.5% in South Korea and 0.3% in China.

Gold and oil prices fell by 1.3% to $1,333.10 per ounce and 1.4% to $103.50 per barrel.

Ten-year British gilt, German bund and Japanese JGB yields are five, four, and one basis points higher.

Dollar movements have been only moderate but conform to what would be expected amid lessening risk aversion.  The dollar is up 0.4% against the yen and 0.2% versus the Swiss franc but down by 0.3% vis-a-vis the kiwi, 0.2% relative to the euro and sterling and 0.1% against the loonie.  The yuan is steady.

The Reserve Bank of Australia left its Official Cash Rate unchanged as expected at 2.5%.  No directional bias was indicated in the forward guidance.  Rising unemployment is being monitored, but so is inflation.  After not protesting the Aussie dollar’s level in February, this month’s statement called such still historically high.  The last OCR change was a 25-basis point cut in August, which was the eighth reduction since November 2011.  Officials now are comfortable with keeping interest rates “stable” for some time and seeing how Australia’s economy evolves.  The Aussie dollar fell after the statement was released.

Two bits of Australian economic news were reported.  First, the current account deficit narrowed from A$ 12.5 billion in the third quarter to A$ 10.1 billion in the final quarter of 2013.  And secondly, building  consents jumped unexpectedly sharply in January.  The 6.8% leap was the first increase of any size since September.

Japan’s monetary base showed accelerated on-year growth of 55.7% in February after 51.9% in January, 48.2% in 4Q13, 34.4% in full-2013, and 7.0% in 2012 under the previous Bank of Japan leadership.  The central bank’s balance sheet grew to JPY 240.45 trillion at end-February from JPY 232.2 trillion a month earlier, and JPY 224.2 trillion at end-2013.  Japanese labor cash earnings, where acceleration is needed to validate the success of Abenomics, instead relapsed in January.  This measure of wage inflation recorded a 0.2% 12-month rate of decline, the first negative result since October.

Producer prices in the euro area fell 0.3% in January, three times more than forecast, and posted a deeper 1.4% 12-month rate of decline.  Energy prices tumbled 1.4% on month and 3.8% on year, while all other producer prices collectively edged up 0.1% from December and slid just 0.4% on year.

Several more purchasing manager surveys got published.

  • The British construction PMI settled back from January’s 77-month high of 64.6 to 62.7 in February, which remained higher than all other recent readings except January’s.  The index ended 2013 at 62.1 and had been below the 50 no-change threshold prior to May 2013.
  • Egypt’s non-oil PMI rebounded to a two-month high of 50.0 in February from 48.7 in January.
  • The Saudi Arabian non-oil PMI printed at a 3-month low of 58.6 versus 59.7 in January, 58.7 in December and 57.1 in November.
  • The United Arab Emirates’ non-oil PMI rose, in contrast, to a 2-month high of 57.3.  The sub-index for input prices was at a 6-month low.
  • Greece’s manufacturing PMI improved by 0.1 to a 66-month peak of 51.3.
  • Mexico’s manufacturing PMI of 52.0 was a 3-month low, while Canada’s 52.9 following a 9-month low in January constituted a 2-month high.
  • The J.P. Morgan global manufacturing PMI ticked up 0.1 to a 34-month high of 53.4.

South Korean consumer price inflation slowed to 1.0% in February from 1.1% in January and remains far below the Bank of Korea’s 2.5-3.5% target range.

Indonesia CPI inflation slowed from 8.2% in January to a still-excessive 7.8% in February.  Indonesia’s trade deficit swung from a $1.5 billion surplus in December to a $440 million deficit in January.  Thai consumer price inflation ticked up to 2.0% from 1.9%, but PPI inflation and the Thai core inflation rate were just 1.1% and 1.2% in February.

Producer prices in Romania fell 1.1% in the year to January, while retail sales increased 5.1% in the same span of time.

The ICSC gauge of U.S. weekly chain store sales exhibited the continuing depressant effect of an unseasonably harsh winter. Such recorded on-year growth of just 1.5% in the week to March 1.  Sales were 0.3% firmer than in the previous week.

Other scheduled U.S. data to be released today are The New York area purchasing managers index, known affectionately as the NAPM index, and the IBD/TIPP optimism index.  Lacker of the Federal Reserve speaks publicly.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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