Persistent Fears about Ukraine Crisis Weaken Equities

May 7, 2014

Investors are tired of the America’s speak-loudly-but-carry-a-small-stick approach to the Ukraine crisis and other geopolitical hotspots, and frustration has been vented on equities, which also have been hurt by uninspiring corporate earnings this season.  Japan’s Nikkei tumbled 2.9%.  Equity losses elsewhere amount to 1.1% in Hong Kong, 1.0% in South Korea and Italy, 0.9% in China, 0.8% in India and Australia, 0.6% in Spain, and 0.4% in Britain.

The euro remained below $1.40 and is currently unchanged from yesterday’s close as are the dollar’s relationships against the loonie and sterling. The weakest major currency today is the New Zealand dollar, off 0.8% versus its U.S. counterpart following RBNZ Governor Wheeler’s assertion that the currency is unsustainably strong.  The U.S. currency is 0.1% firmer against the Swissie and Aussie dollar and up 0.2% relative to the yuan.

Ten-year sovereign debt yields edged down two basis points in the U.K. and by a single basis point in Japan and Germany.

Oil firmed 0.7% to $100.24 per barrel.  Gold is 0.2% higher at $1,311.40 per ounce.

Janet Yellen testifies today at 14:00 GMT before the Joint Congressional Economic Committee.  ECB and Bank of England interest rate announcements are due tomorrow.  Both central banks are expected to hold policy steady.

Meantime, the Czech National Bank Board left its two-week repo rate unchanged at 0.05% and reaffirmed its exchange rate policy that limits koruna strength against the euro at CZK 27.00.  Czech retail sales and industrial production were 5.2% and 8.7% higher than a year earlier in March.

There will be a Polish interest rate announcement later today.  Bank of Japan Board minutes from the April 7-8 meeting stuck to the forecast of moderate recovery but expressed some uneasiness about the slow trend in wage growth.

More purchasing manager survey results got released today.

  • Japan’s composite PMI plunged 6.5 points in April to 46.3, the lowest reading since May 2011. 
  • Japan’s services PMI fell by 5.8 points to 46.4 and was much lower than analyst expectations that hovered around a reading of 50.
  • Russia’s services PMI dropped another 0.9 points to a contractionary 46.8 reading, lowest since May 2009.  Sanctions may be hitting the Russian economy, but Putin’s nationalist foreign policies are playing well to his domestic popularity.
  • The composite Russian PMI score of 47.6 in April was below 50 for the third time in four months.
  • The HSBC-compiled Chinese composite PMI of 49.5 was 0.2 points higher than in March but still constitutes the third straight sub-50 result.
  • China’s services PMI fell a half point to 51.4 according to HSBC.
  • Australia’s construction PMI stayed well below 50 in April at 45.9, which was even lower than the tepid first-quarter average score of 46.2.
  • Germany’s construction PMI slipped below 50 for the first time in a year, printing at 49.7 after 52.3 in March.
  • Euroland’s retail PMI advanced to a 36-month high in April of 51.2 from 49.2 in March and 48.5 in February. 
  • Italy’s retail PMI, 49.5, was 3 points higher than in March and at a 38-month high.
  • The French retail PMI edged up 0.1 to an 8-month high of 50.3.  Such had been lower than 50 prior to March.
  • The German retail PMI rebounded 3.1 points to 53.1, a 3-month high, after dropping by 2.5 points in February and another 2.1 points in March.

German industrial orders plunged 2.8% in March, slashing the 12-month rate of increase by five percentage points to 1.5%.  Foreign orders fell 4.6%, while domestic orders slid 0.6%.  Orders on average were unchanged between 4Q13 and 1Q14.

New Zealand first-quarter labor statistics revealed jobs growth of 0.9% from 4Q13 and 3.7% on year (both greater than forecast), an unchanged 6.0% unemployment rate (also above expectations), and a lower-than-anticipated 0.7% quarterly rise in average hourly earnings.

Australian retail sales produced a clunker of a report.  A 0.1% uptick after February’s 0.3% rise was the worst result in eight months.  But first-quarter sales were 1.2% higher.

French industrial production dropped 0.7% on month in March, and the EUR 4.9% trade deficit was 29% wider than February’s.  Irish industrial output, in contrast, posted solid February increases of 4.7% on month and 11.5% on year.  Swiss unemployment stayed at 3.2% in April.  Austrian wholesale prices recorded a smaller 12-month decline of 1.3% in April.

U.S. mortgage applications rebounded 5.3% last week from a 5.9% drop the week before.  Scheduled U.S. data releases today include productivity, unit labor costs, consumer credit, and weekly oil inventories.  Yellen’s testimony will deal with the economic outlook.

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

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