A Few Surprises

December 10, 2014

Chinese share prices rebounded 3.7% as CPI inflation falls to lowest level (1.4%) since November 2009.  Producer prices meanwhile posted their greatest on-year decline (2.7% after 2.2%) since May 2013, further encouraging investors to speculate about another central bank rate cut in the world’s second biggest economy.

The 10-year Japanese JGB yield dipped under the 0.40% threshold for the first time in ages to print at 0.39%.  Lower House Japanese elections are set for this Sunday, and polls suggest that the LDP/Komeito coalition will augment its majority to more than 2/3rds of the seats.  Abenomics has yielded worse results than hoped, and Japan is in its fourth technical recession since 2008.  There were three more disappointing Japanese data reports:

  1. Consumer confidence fell 1.3 points in November to a reading of 37.4, lowest since April.
  2. Domestic corporate goods price inflation slowed to 2.7% in November, down from 3.6% in September and a 2014 high of 4.5% in June.  Import prices slumped 2.8% on month and 5.7% on year, more than twice October’s year-over-year decrease.
  3. The Ministry of Finance’s quarterly survey of corporate conditions saw sentiment for all large firms dropping 6.1 points to a reading of 5.0, and respondents think such will be even lower by mid-2015.

Investors are also anxious about upcoming snap presidential elections in Greece.  If Prime Minister Samaras fails to win this virtual vote of confidence, the next government is likely to be much more hostile to the notion of fiscal responsibility.  Greek bond yields have shot up in recognition of that possibility.  Greek industrial production dropped 3.5% on month and 0.7% on year in October.

The Central Bank of Iceland cut its seven-day lending rate by twice as much as forecast.  Such falls to 5.25% from 5.75%.  Projected Icelandic growth was revised downward, and CPI inflation continues to run far below the targeted 2-3% corridor.

French industrial production sank 0.8% in October and was 1.0% lower than a year earlier.  Analysts were assuming a small uptick.  French nonfarm payroll jobs slid 51K last quarter or 0.3%.

The German RWI economic institute revised down its forecast of German economic growth next year.

Bank of England Governor Carney warned that U.K. CPI inflation will likely slide under 1.0% in the near term, noted the weakness of British exports, and emphasized that eventual interest rate increases at the central bank will proceed cautiously and be more limited than in the past.

Tomorrow offers a smorgasbord of central bank interest rate announcements from the likes of Norway, South Korea, Russia, The Philippines, New Zealand, Serbia, Indonesia, Peru, and Chile.

Meanwhile in overnight market action,

  • The dollar has fallen 0.4% against the Australian and New Zealand dollars, 0.3% versus the yen, and 0.1% vis-a-vis the yuan and sterling.  The greenback is unchanged against the euro and up 0.1% relative to the loonie and Swiss franc.
  • WTI oil declined yet another 1.8% to $62.67 per barrel and has dropped 15% since the November OPEC decision to leave production quotas unchanged.
  • Comex gold dipped 0.3% to $1,228.60 per ounce.
  • Whereas the 10-year JGB yield slid two basis points, comparable German bund and British gilt yields are one and three basis points more elevated.
  • Share prices in Europe have rebounded by 0.8% in Germany, 0.6% in Spain, 0.4% in France and Italy but just 0.1% in Britain.
  • Japan’s Nikkei dived 2.3%, and share prices fell by 1.3% in South Korea, 1.1% in Taiwan, 0.5% in Australia and 0.4% in New Zealand.

In other data released today, the British goods and services trade deficit fell by GBP 0.8 billion to GBP 2.024 billion.  The improvement included a 7-month low in the merchandise trade deficit of GBP 9.62 billion in October after GBP 10.506 billion the month before.

South African CPI inflation of 5.8% in November after 5.9% in October remained just barely within the 3-6% target.

Dutch and Finnish industrial production posted 12-month changes in the year to October of +1.0% and -0.4%.

Danish consumer prices posted a harmonized 12-month rise of only 0.2% in November.  In the same period, Norwegian producer prices fell by 6.6%, while its consumer prices rose 1.9%.

Turkish GDP when adjusted for working day variations went up 0.4% last quarter and by a considerably weaker-than-forecast 1.8% between 3Q13 and 3Q14.  The data reflected weak personal consumption and lower business investment.

No meaningful U.S. data are scheduled today.

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

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