Three Shocks Slam Global Financial Markets

December 11, 2015

Stocks are plunging and the 10-year Treasury yield fell seven basis points today in response to three developments.

  1. Oil prices fell 1.2% to $36.33 per barrel.  Commodities were hit by a projection from the International Energy Agency that the global oil surplus will persist for another year.
  2. China’s central bank website announced plans for the object of yuan management to shift from its value against the dollar to its value against a basket of major currencies.  This implies greater depreciation against the U.S. currency than seen thus far.
  3. Markets attach over a 3 in 4 probability that the federal funds rate is hiked next week and believe this will generate increasing capital flight from emerging economies.

The Dow slumped 275 basis points in the first 20 minutes of trading today.  Elsewhere, share prices fell 2.3% in Japan, 1.5% in Hong Kong, 1.6% in Indonesia, 1.2% in Taiwan, and 0.6% in China.  Stocks in Europe are down 2.3% in Germany, 1.9% in France, 1.8% in Italy, 1.6% in Switzerland, 1.3% in Spain but just 0.6% in Britain.

The 10-year British gilt yields is six basis points lower.  Japan’s JGB edged up a basis point, however.

Comex gold climbed 0.7% to $1,078.59 per ounce.  Other metals like copper have experienced a respite.

U.S. retail sales, producer price, and U. Michigan consumer sentiment data released today contain no justification for delaying a federal funds rate hike next week.

  • Retail sales posted a larger 0.2% on-month increase in November.  Non-auto sales went up 0.4% on month.
  • The 12-month decline in the PPI, which had widened to 1.6% in October from 1.1% in September, returned to 1.1% in November.
  • The preliminary estimate of consumer confidence in December printed at 91.8, a half-point above November’s level.

Russia’s central bank did not cut its one-week auction rate further as a minority of analysts were predicting.  Such was reduced by 600 basis points during the first seven months of 2015 but has been at 11.0% since July.  The directional policy bias remains toward ease, however.

The Central Reserve Bank of Peru increased its monetary policy rate by 25 basis points to 3.75%.  Actual and expected inflation are currently above the target range.

The final release of German consumer prices in November confirmed preliminary indications.  The CPI went up 0.1% on month and 0.4% on year, the highest 12-month increase in March.  The on-year drop in the energy component has fallen to 7.5% from 8.6% in October and 9.3% in September.

Germany’s wholesale price index posted a 0.2% drop in November from October.  A 12-month decline of 1.1% was the smallest since August.  The average on-year WPI decline in 2015 has been 1.2% following calendar year drops of 1.2% in 2014 and 0.6% in 2013.

British construction output edged up 0.2% in October and increased 1.0% in on-year terms.

Italian industrial production increased 0.5% in October and recorded a larger 2.9% advance from a year earlier.

The French current account swung to a EUR 1.40 billion deficit in October from a EUR 0.30 billion surplus in September.

In the year to November, consumer prices rose 0.6% in Portugal but fell 1.1% in Romania.

Bank lending last month in China of CNY 708.9 billion ertugaxceeded October’s CNY 513.6 billion total and analyst forecasts.  A 13.7% on-year increase in M2 money was up from 13.5% in October and the strongest 12-month rise so far in 2015.  The same was true of M1, up 15.7%.  M0 grew 4.0% from November 2014, the biggest 12-month increase since March.

The Conference Board’s index of Japanese leading economic indicators dipped 0.2% in October, while the index of coincident economic indicators edged 0.2% higher.

Industrial production growth for October in India, up 1.6% from September and 9.8% on year, surpassed expectations.

New Zealand’s manufacturing purchasing managers index rebounded 1.5 points to 54.7 in November, which is again near to September’s 55.0 reading.

New Zealand food prices fell 0.2% in November both from October and a year earlier.  New Zealand consumer confidence sank 3.3% in December.

South Korea’s index of leading economic indicators rose 0.5% in October, and the coincident index climbed 0.3%.  Both increases were less than posted in September.

Mexican industrial output dipped 0.1% in October, trimming the 12-month rate of increase to 1.0%.

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


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