A One-Two Punch from China and Greece

August 21, 2015

The dollar’s retreat was extended overnight, hitting a low of 1.1312 per euro.  Against Thursday closing levels, the U.S. currency lost 0.6% against the kiwi and yen, 0.5% versus the euro, and 0.4% vis-a-vis the Swiss franc.  The dollar, in contrast, is unchanged relative to the yuan and Australian dollar and shows gains of 0.4% against the loonie and 0.1% versus sterling.

China’s battered stock market sank slightly more than 4.0%.  Share prices also lost 3.0% in Japan and Taiwan, 2.4% in Indonesia, 2.0% in South Korea, 1.7% in Hong Kong, 1.4% in Australia, 1.3% in Singapore and 0.9% in India. Among European bourses, equities have slumped 2.7% in Greece, 2.0% in Switzerland, 1.4% in France, Italy and Spain, and 1.2% in Germany and Britain.  The U.S. market lost 1.0% in the first 30 minutes of trading, half as much as yesterday’s 2% collapse.

WTI crude oil slipped 0.4% to $41.16 per barrel.  Comex gold, at $1,156.45, is 0.4% above Thursday’s close.

Ten-year sovereign debt yields fell five basis points in the U.K. and a basis point in Germany.  The ten-year Treasury yield of 2.07% is at yesterday’s close.  No expressed signal has been sent from the Federal Reserve that the FOMC is inclined to back away from a rate hike this year, although S.F. Fed President Williams warned that tightening monetary policy to cool house price inflation carries risks.

China’s manufacturing purchasing managers index plunged in August to a 77-month low of 47.1 according to a preliminary reading from a 24-month low of 47.8 in July and 49.2 in June.

The early September 20th election called by Greek Prime Minister Tsipras elicited a thumbs-down from the Fitch rating agency, which said the action underscores continuing danger that Greek reform promises may not be delivered.  September 20 is already an ominous date for the common currency area.  On that date in 1992, French voters by referendum approved the scheme by the narrowest of margins.  This in retrospect was an enormous mistake for the regional and global economies. Had the “no’s” collected just one percentage point more of the vote, all today’s EMU problems would have been averted, and the foreign policy tensions between members would be less severe.

Speaking of France, Euroland’s second largest economy posted a 4-month low in the composite purchasing managers index in August, a score of 51.3 that suggests that last quarter’s lack of any GDP growth may have extended into the present quarter.  The manufacturing and services components, respectively at 48.6 and 51.8, were each at 4-month lows.  The only bright spot of the report was that business sentiment improved to a 3-1/2 year high.

Markit Economics’ U.S. preliminary manufacturing PMI fell 0.9 points to a 22-month low of 52.9.  Orders, output, and jobs growth were each slower than in July.

The preliminary purchasing manager results for other eurozone members and Japan were more encouraging than those of France, the U.S., and China.

  • Euroland as a whole recorded a composite PMI of 54.1, 0.2 points better than in July and a 2-month high.  Although manufacturing remained at July’s 2-month low of 52.4, services rose 0.3 to a 2-month high of 54.3.
  • Germany’s manufacturing PMI of 53.2 was at a 16-month high and 1.4 points above the July level, offsetting a services PMI drop to a 3-month low of 53.6.  The composite German PMI rose 0.3 points to a 4-month high of 54.0.
  • Japan’s manufacturing PMI advanced 0.7 points to a 7-month high of 51.9 in August.  Growth in jobs and orders was faster than the month before.

Japan also reported a better 1.9% on-year increase in supermarket sales in July.

The Conference Board released indices of leading economic indicators for Spain, France, and India.  Spain’s LEI fell 0.4% for a second straight month in June, but its index of coincident economic indicators firmed 0.3%.  The French LEI climbed 0.4% in June, but the CEI was flat that month.  India’s LEI and CEI jumped 1.5% and 1.7% in June.

Swedish capacity utilization improved a whole percentage point to a 29-quarter high of 89.7% last quarter.

German consumer confidence edged lower to 9.9 in September from a 10.1 reading in August.  Danish consumer sentiment slid 0.3 points to a half-year low of 9.2 in August, and Turkish consumer sentiment unexpectedly dropped to 62.35 in August from 64.66 in July and 66.95 in June.

British public finances were worse in July than June.  Icelandic wage inflation accelerated to 7.9% in August.  Earlier this week, Sedlabanki tightened monetary policy further, citing recent excessive wage settlements.

Canadian retail sales rose 0.6% on month and 1.4% on year in June.  The on-year advance in the first half averaged 2.2%.  Mexican retail sales went up 1.1% in June, lifting the 12-month rate of increase to 5.4%.

Consumer prices in Canada rose 0.1% on month and 1.3% on year in July.  Core inflation ticked up to 2.4% from 2.3%.

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

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