Chinese Growth Concerns Weigh on Equities

May 5, 2014

There are holiday closures today in Britain for a spring bank holiday, Japan for Children’s Day (part of Golden Week) and Mexico for Cinco de Mayo.

The main market mover has been a disappointing Chinese manufacturing purchasing managers survey, whose April reading of 48.1 was revised down from a preliminary indication of 48.3 to near the 8-month low of 48.0 in March.  The January and February readings had also been below the 50 demarcation between expanding and contracting activity.  Export orders and manufacturing jobs fell in April.

Share prices in Europe have so far tumbled 1.4% in Germany and Italy, 1.1% in Switzerland and France and 1.0% in Spain.  Equities dropped 0.6% in New Zealand, 1.3% in Hong Kong, 0.3% in Singapore but just 0.1% in China and South Korea.

Gold and oil prices are up 0.8% and 0.5% at $1,312.70 per ounce and $100.28 per barrel of WTI crude.

Overnight currency movements, by comparison, have been calm.  The dollar is unchanged against the euro and sterling, down 0.2% versus the yen and yuan, off 0.1% vis-a-vis the kiwi, Swissie and loonie, and up 0.1% relative to the Australian dollar.

The German 10-year bund is unchanged.

In other reported purchasing manager survey results,

  • Russia’s manufacturing index edged up 0.2 points to a 2-month high of 48.5 but was below the 50 threshold for a sixth straight time in April.
  • South Africa’s manufacturing PMI fell by 2.9 points and, at 47.4, was below 50 for the first time since January.
  • Hungary’s manufacturing index rose 0.9 points to a 13-month high of 54.6.
  • The Australian service-sector index fell by 0.3 points to 48.6, the sixth sub-50 reading in the past seven months.

Projected Australian inflation in the coming months edged up a tenth of a percentage point to 2.8%, still within its targeted corridor.  Aussie job ads rose 2.2% in April on top of monthly gains of 4.7% in February and 1.3% in March.  Despite a 3.5% monthly drop, Aussie building permits were 20% higher in March than a year earlier.

Euro area producer prices slipped 0.2% in March and fell 1.6% from a year earlier.  Energy prices slumped 0.8%, while all other producer prices collectively were unchanged between February and March.  Between the final quarter of 2013 and the first quarter of 2014, the PPI dropped 1.7% at an annualized rate.

The Sentix measure of investor sentiment toward Euroland printed 1.3 points lower in May at a four-month low of 12.8.

Swedish industrial production recorded declines in March of 3.8% from February and 4.5% from a year earlier.

EU finance ministers are are meeting today and tomorrow in Brussels, and the EU Commission has released its Spring 2014 economic forecast, which projects CPI inflation in the euro area of 0.8% this year and 1.2% in 2015.  The Commission is forecasting growth in real GDP of 1.2% in 2014 followed by 1.7% in 2015.  These gains exceed the estimated 0.7% per annum rise of potential GDP in this period.

Turkish CPI inflation accelerated a percentage point to 9.4% in April, while PPI inflation went up 0.7 percentage points to 13.0%.  The consumer price pace was higher than analysts were anticipating.

Unemployment in South Africa rose to 25.2% last quarter from 24.1% in the final quarter of 2013.

On-year Indonesian GDP growth slowed a half percentage point to 5.2% in 1Q14.

The U.S. service-sector purchasing managers survey will be reported later today.  Many more PMIs are due Tuesday as are interest rate policy statements from the central banks of Australia and Romania.

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

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