European Equity Blues

April 8, 2014

Russian President Putin is at it again, accusing Ukraine of fomenting civil war in its eastern regions and apparently moving toward annexation of more Ukrainian territory into the Russian orbit of influence. 

Geopolitical risk depressed stocks in Europe by a further 1.6% in Spain, 1.4% in Italy, 0.9% in France and Britain and 0.8% in Germany.  Asian markets were more mixed, with stocks falling by 1.4% in Japan, 0.9% in New Zealand and 0.1% in Australia and India but rising 2.4% in China after Monday’s closure, 1.0% in Hong Kong, 0.3% in Singapore, and 0.2% in South Korea.

Putin’s gambit puts the Obama presidency and U.S. image in a bad light.  The dollar is broadly lower with declines of 0.8% against the kiwi, 0.7% versus the yen and Australian dollar, 0.6% vis-a-vis sterling, and 0.3% relative to the euro, Swissie, and loonie.  The yuan is unchanged.

Ten-year British gilt and German bund yields are up by four and two basis points.  The ten-year Japanese JGB is steady after the Bank of Japan left its policy settings unchanged and gave no hint of upcoming extra stimulus.

Commodities and emerging market currencies firmed.  Gold and oil are each some 1% stronger at $1,311.20 per ounce and $101.40 per barrel.

The BOJ Board retained a 0.0-0.1% overnight money rate range and its policy of doubling the monetary base within two years.  Governor Kuroda in Q&A expects inflation to reach 2% within two years and said no consideration of additional easing now was given.  The Board projects continuing moderate recovery with 1.25% inflation over the near term but then rising further.

Bank Indonesia as expected left its reference BI interest rate at 7.5%, the level since a 25-basis point hike in November.

Japan’s seasonally adjusted current account deficit narrowed very sharply to JPY 41 billion in February from JPY 588 billion in January.  There was an unadjusted surplus (amounting to JPY 613 billion) for the first time since September.  But customs trade figures for the first twenty days of March showed a JPY 1.164 trillion deficit against a JPY 491 billion deficit a year earlier.  Imports (up 22.8%) rose about three times faster than the 7.6% on-year gain in exports.

Japan’s current economy watchers index unexpectedly improved 4.9 points to 57.9 in March.  However, the outlook economy watchers index fell 5.3 points to 34.7 and was 20 points beneath the reading for December 2013, underscoring the trepidation of people close to retail activity now that the consumption tax has been raised.

Japanese bankruptcies posted an 11% on-year decline in March.  BOJ Governor Kuroda said that Japan is now at very close to full employment.

The NIFB index of U.S. small business sentiment rebounded 2.0 points to 93.4 in March after falling from a reading of  94.1 in January to 91.4 in February.

Australian business confidence slipped three points to +4 in March, lowest since August 2013.  Business conditions edged up a point to +1 but remained four points lower than in January.  New Zealand business sentiment slid to a reading of 52 last quarter from 53 in the final quarter of 2013.

The Bank of France’s index of French business sentiment printed at 96 in March, extending its fall from 101 in November to 100 in December, 99 in January and 98 in February.  The Bank of France expects French GDP to rise 0.2% in the first quarter of 2014. 

British industrial production leaped 0.9% in February, most since last June, and posted a 2.7% on-year increase. 

Swiss retail sales rose 1.0% both on month and on year in February, and its jobless rate stayed low at 3.2% in March.

Other U.S. data today are the Labor Department’s JOLTS data on hirings and separations and weekly chain store sales.  Canada will be releasing housing starts and building permits.

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

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