There’s Greece, and There’s the Rest of the Euro Area

January 26, 2015

Markets reacted with concern to a resounding victory of the Leftist anti-austerity Syriza Party in Greek parliamentary elections over the weekend.  The 10-year Greek sovereign debt yield jumped 33 basis points, and Greek share prices have fallen 3.5% after initially losing 5.6%.  One member of the ECB Governing Council reiterated that there can be no compromising the fact that Greece has to service its debt fully.

Europe is not suffering contagion, however.  The euro has risen 0.6% against the dollar and even more against the Swiss franc.  Equities have gained 1.1% in Spain, 0.6% in Italy, and 0.8% in Germany.  Share prices are up 1.5% in Switzerland and 0.3% in France but down 0.3% in Britain and marginally in the United States.

Australia is observing the Australia Day holiday.  Elsewhere in the Pacific Rim, stocks rose 1.0% in China, 0.9% in India, 0.2% in Hong Kong, and 0.1% in Taiwan but fell by 1.2% in Indonesia, 0.4% in Singapore and 0.3% in Japan.

The 10-year German bund yield slipped two basis points, while the 10-year sovereign debt yields have edged a basis point higher in the United States, Britain and Switzerland.  The 10-year Japanese JGB is steady.

Comex gold fell 0.7% to $1,283,70 per ounce.  West Texas Intermediate oil firmed 0.4% to $45.39 per barrel.

Market activity in the United States will be held down today and tomorrow due to yet another storm of the century moving slowly up the Eastern Corridor.  Blizzard conditions with high winds and little visibility are expected to dump over two feet of snow on New York City and possibly more than three feet.  Hurricane-force winds are projected for Cape Cod.  U.S. compliance with world efforts to restrain consumption of fossil fuels has been undermined by the fact that the Eastern two-third of America, along with Antarctica, are the only places to be experiencing colder than trend temperatures.  Not seeing is not believing.

The German IFO Economics Institute reported a third straight monthly improvement in Germany’s business climate index, which printed at 106.7 in January after 105.5 in December, 104.6 in November and 103.4 in October.  Current conditions rose by 1.9 points to 111.7, while the expectations sub-component went up only 0.7 points to a lower-than-forecast 102.0.  Construction worsened to a new low of –5.8, but retail, wholesale, and manufacturing activity reached their best levels in 7, 6, and 5 months, respectively.  The IFO service sector climate index fell 1.3 points to a 2-month low of 24.5.

Kristin Forbes, one of the new members of the Bank of England monetary policy committee, implied that the central bank interest rate may start rising sooner than markets expect due to the boost to demand that cheaper energy will deliver.

The Bank of Israel again left its key interest rate at a record low 0.25%.  There were three cuts in 2014, three in 2013, three in 2012, and three in 2011 – each by 25 basis points.

Minutes from the Bank of Japan’s Board meeting of December 18-19 found policymakers expecting producer prices to drop in the near term but also express confidence that lower energy costs will ultimately promote faster growth and exert a positive influence over inflation.

Japan reported a smaller-than-forecast customs trade deficit in December.  Such shrank 14.5% on month to JPY 712 billion in seasonally adjusted terms and 49.1% to JPY 661 billion in unadjusted terms.  Trade is responding to the cheaper yen and lower oil prices.  The JPY 12.8 trillion deficit in 2014 was the fourth red-ink calendar year total in a row and exceeded the 2013 JPY 11.5 trillion total, as exports (4.8%) failed to keep pace with a 5.7% rise in imports.

Industrial production in Singapore fell 1.9% on year in December but was 2.6% higher in full-2014 than the year before.

Malaysia’s jobless rate edged up to 2.8% in November from 2.7% in October.

New Zealand’s service-sector purchasing managers index improved 0.8 points to a reading of 56.5 in December.

Producer prices in Finland dropped 1.8% between end-2013 and end-2014, the largest on-year decline in 9 months.  Spanish producer prices over the same period fell by 3.7%.

Business confidence in the Netherlands unexpectedly slipped 0.6 points to a January reading of 2.8.

Overall economic confidence in the Czech Republic this month was little changed from December, as consumer grew more confident but businesses became warier.  Business confidence in Turkey went up two points to 103.2 this month.  Consumer confidence in Brazil fell by a sharp 6.4 points to 89.8 in January.

Retail sales in Mexico rose 0.8% on month and 1.2% on year in November, considerably less than anticipated. 

Finance ministers in the euro area are meeting today and tomorrow.  The Dallas Fed monthly manufacturing index is due today.

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

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