New Wave of Anxiety over Europe

January 9, 2015

Share prices are down by 3.0% in Spain, 1.1% in Italy, 0.7% in Britain and France, and 0.6% in Germany.

An unexpected 0.1% dip in German industrial production during November was reported today, along with news of smaller-than-forecast current account and trade surpluses that month and a 2.1% on-month decline in exports.  The EUR 18.6 billion current account surplus was less than surpluses of EUR 22.5 billion in October and EUR 21.1 billion in November 2013.  The seasonally adjusted trade surplus narrowed 15.4% on month to EUR 17.6 billion.  Industrial production was depressed by a 2.4% plunge in energy, offset by only a 0.3% rise in factory output.  The 12-month change in industrial production swung from a rise of 1.2% in October to a drop of 0.5% in Euroland’s main economy.

A second source of uneasiness about the euro area came from unconfirmed speculation that the ECB only plans to announce EUR 500 billion of quantitative easing (sovereign bond purchases) after its January meeting.  This amount is deemed inadequate.  Under a new framework of less frequent meetings, the ECB’s January meeting is scheduled for January 22, three days before Greek legislative elections.  Negative CPI inflation in December seemingly forces monetary officials to take some action.

There is a Japanese by-election this weekend that may shed light on Prime Minister’s political leeway for implementing unpopular structural reforms that are deemed essential for ending two decades of lackluster growth with deflationary properties.

Japan’s index of leading economic indicators fell 0.7 points to 103.8 in November.  The LEI has dropped by 2.4 points since September.  The index of coincident economic indicators declined a whole point to 108.9 and was assessed by officials to be “signaling a possible turning point.”   Japan also experienced a $8.53 billion decline in its stock of international reserves last month to $1.26 trillion.

Ahead of today’s U.S. jobs report (see below), the dollar has traded lower by 0.4% against sterling, 0.3% versus the yen and Australian dollar, 0.2% relative to the Swiss franc and 0.1% against the euro and yuan.  The dollar is steady against the loonie; Canada also reports jobs, unemployment, and wage figures.

In stock market action around the Pacific Rim, share prices rose 1.6% in Australia, 1.1% in South Korea, 0.7% in India, 0.4% in Hong Kong, and 0.2% in Japan and New Zealand but fell by 0.4% in China and 0.2% in Taiwan and Singapore.

West Texas Intermediate oil dropped 0.4% back to $48.58 per barrel.  Comex gold is 0.3% higher at $1,212.20 per troy ounce.

10-year sovereign debt yields dipped two basis points in the U.K. and by a basis point each in Japan and Germany.

Chinese consumer prices rose 0.3% on month and 1.5% on year in December, up from a 12-month rise of 1.4% in November but below on-year advances of 2.5% both in December 2013 and December 2012.

Chinese producer prices posted a greater-than-forecast 3.3% year-over-year drop in December versus declines of 2.7% in November, 1.4% in December 2013, and 1.9% in December 2012.

Several countries in addition to Germany released industrial production (IP) data today.

  • British IP slid 0.1% on month in November versus a consensus forecast of +0.2%.  Output was 1.1% higher than a year earlier.
  • IP in the Czech Republic rebounded 1.2% in November, lifting the 12-month rate of rise to 4.7%.
  • Danish IP edged 0.1% higher in November and was 1.5% greater than a year earlier.
  • Dutch IP, in contrast, fell 5.4% between November 2013 and November 2014.  The Netherlands is an energy producer.
  • Swedish IP recorded a 0.2% month-on-month dip in November and was 5.0% lower than a year earlier.
  • Spanish IP fell 0.1% on month and was unchanged from a year earlier.
  • Malaysian IP advanced by 1.5% in November after a 0.6% rise in October and exceeded its year-earlier level by 4.7%.
  • Irish IP grew 4% on month in November.
  • Greek IP fell 2.0% on month but recorded a 2.3% 12-month rise in November.

Australia’s construction purchasing managers index fell a whole point to a 10-month low of 44.4 in December, indicating a faster pace of contraction.  As recently as September, the index stood at a 9-year high of 59.1.

Monthly growth in Australian retail sales slowed to 0.1% in November from 0.4% in September and October.

Brazilian CPI inflation of 6.4% in December was down from 6.6% the month before.  Norwegian CPI inflation ticked higher to 2.1% in November from 1.9% in October.  However, Norway’s PPI posted a 7.9% drop between end-2013 and end-2014. 

The British goods and services trade deficit narrowed to GBP 1.406 billion in November from GBP 2.246 billion in October.  The merchandise trade deficit of GBP 8.848 billion was 10% smaller than October’s shortfall.

JUST IN:  U.S. nonfarm payroll jobs rose 252K in December, close to expectations, and 2.96 million in 2014 (or 2.2%).  The jobless rate fell 0.2 percentage points (ppts), not 0.1 ppt as forecast, to 5.6%, but labor participation slowed to 62.7%, a 3-month low, from 62.9%.  And on-year growth in average hourly earnings dropped to 1.7% in December from 2.1% in November.  Before the Fed raises interest rates, a sustained acceleration of wage inflation would seem to be a necessary condition that officials will wish to see.

Canadian joblessness stayed level at 6.6% last month, and jobs fell by 4.3K because of 57.6K fewer part-time workers.  Canadian employment grew 1.0% between end-2012 and end-2013, led by a 2.0% advance in the self-employed.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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