Festering Geopolitical Tension and Mixed Purchasing Manager Survey Developments

March 24, 2014

The dollar opened unchanged against the loonie, kiwi, and sterling in the final week of the first quarter.  Itis up 0.4% against the Swiss franc, 0.3% versus the yen and 0.2% relative to the euro but down 0.3% against the Australian dollar.

Despite another deterioration in Chinese manufacturing, Chinese equities and the yuan advanced by 0.8% and 0.5%.  HSBC’s preliminary manufacturing PMI for China dropped 0.4 points to a reading of 48.1 for March, lowest since July 2013 and the third sub-50 score in a row.  Manufacturing is contracting at a faster pace, and the rate of change has deteriorated each month since November.

Stock markets in the Pacific Rim got a lift after HSBC also predicted that China’s government will be soon taking steps to stabilize growth at a still-respectable pace, rather than let such keep slowing.  Japan’s Nikkei rose 1.8%, and equities gained 1.9% in Hong Kong, 1.4% in India, 1.3% in Singapore, 0.6% in South Korea but just 0.2% in Australia.

Tensions regarding Russia’s possible further intentions in controlling Ukraine kept European equities on their heels.  Stocks there have declined so far this Monday by 1.0% in Madrid, 0.7% in Zurich, 0.6% in Milan, 0.5% in Paris and Frankfurt and 0.3% in London.

Gold slumped 0.9% to $1,323.40 per ounce.  West Texas Intermediate oil edged 0.2% higher to $99.66 per barrel.

The ten-year British gilt and Japanese JGB yields ticked up a basis points, while the 10-year German bund has remained steady.

The hunt for the Malaysian Airlines Flight 370, which went missing on March 8, continues.  Australian searchers are pursuing leads spotted from the air in the Indian Ocean about 2.5K KM from Perth.

In contrast to the disappointing Chinese purchasing managers survey, the preliminary French PMIs surprised analysts with much better and better-than-expected PMI results. The French composite score of 51.6 was above 50 for the first time since October, 2.7 points above the February reading, and the fastest pace of expansion in 31 months.  The French manufacturing PMI of 51.9 in March follows a 49.7 reading in February is constitutes a 33-month high, while the French services PMI of 51.4 was 4.2 points better than the score in March and at a 26-month peak.

In contrast, the German composite PMI of 55.0, manufacturing PMI of 53.8, and services PMI of 54.0 represent 3-month, 4-month, and 2-month lows.  The February readings had been at 56.4, 54.8, and 55.9, and first-quarter average scores suggest GDP growth of as much as 0.7% in Germany.

For Euroland as a whole, there was a preliminary PMI reading of 53.2, a two-month low but consistent along with January and February findings with quarterly GDP growth of about 0.5%.  The manufacturing and services PMI readings in the euro area of 53.0 and 52.4 were 3- and 2-month lows.

Japanese supermarket sales grew 1.5% on year in February.  Along with last week’s report of a 3.0% on-year rise in department store sales, this strongly suggests that large-store retail sales and total retail sales were greater last month than in February 2013.

Bank of Japan Board member Iwati in a speech said that prolonged sub-1% inflation enhances the risk of outright deflation.  While citing that danger as a reason for setting the inflation target in Japan at 2% rather than 1%, his remark seems most directed at the ECB, which continues to reject private worries about slipping into deflation in the euro area.

The Czech composite sentiment index rose 0.9 points to 10.0.  Readings for business confidence rose 0.9 points to 10.0 in March, while consumer confidence advanced 3.5 points to -5.5.

Finnish PPI deflation intensified to minus 1.3% in February from -0.9% in January.  The Greek current account deficit of EUR 295 million in January was 37% bigger than in the previous month. 

CPI inflation in Singapore slowed a full percentage point to a mere 0.4% in February.  Industrial production in Taiwan was 7.0% greater in February than a year before, but the gain was distorted because the Lunar New Year had been in February during 2013 but fell in January this year.

The Bank of Israel will be revealing its latest interest rate decision today.

Scheduled U.S. data to be released today include the Chicago Fed National Activity Index and Markit Economics’ preliminary estimate of the manufacturing PMI.

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

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