A Fearful Start to the New Year

January 4, 2016

China’s stock market was halted automatically after a 7% plunge. 

The yuan fell 0.7% and is 5.0% weaker against the dollar than its opening level of 2014.

China’s manufacturing purchasing managers index dropped 0.4 points to 48.2, a three-month low and fifth consecutive sub-50 reading in a row.  Such scores indicate a contraction of factory-sector activity.

Uneasiness about the state of U.S. politics continues to fester, fanned by further inflammatory remarks over the weekend by Republican front-runner Donald Trump.  Trump’s influence over global financial market sentiment stems not so much from the belief that he will be elected, which is still considered a long shot, but rather from what his popularity is revealing about the soul of America.

Saudi Arabia broke off diplomatic relations with Iran.

Yet another source of uneasiness involves the unpredictable repercussions of Fed tightening.  At the annual American Economic Association meetings, Fed Vice Chairman Fisher was upbeat that short-term interest rates had indeed followed the Fed’s policy lead but cautioned that these are early days.  Fed officials do not appear particularly concerned about resulting asset price turmoil.  Only adverse real economic effects are likely to influence the path of rate normalization.

In other stock market action on this first trading day of 2016, equities fell  3.1% in Japan, 3.3% in Hong Kong, 2.7% in Taiwan, 2.1% in India, 2.2% in South Korea, 1.6% in Singapore, and 1.5% in Indonesia.  The pace of deterioration accelerated when Europe joined in.  Those markets so far are down 4.5% in Germany, 3.8% in Greece, 2.9% in France, 2.6% in Britain, 2.8% in Spain, 3.0% in Italy and 2.5% in Switzerland.

Gold and oil climbed 1.1% and 0.8% to $1,072.22 per ounce and $37.33 per barrel.

The dollar has jumped 1.3%, 1.2%, and 0.7% against its Australian, New Zealand, and Canadian counterparts, which are all commodity-sensitive currencies and thus susceptible to bad news out of China.  The dollar fell 0.9% against the yen, 0.3% versus the euro, and 0.1% vis-a-vis the Swissie and sterling.

The ten-year British gilt yield declined seven basis points.  A similarly large drop in its U.S. Treasury counterpart is implied in the futures market.

Market gloom today contrasts with some pretty good December manufacturing PMI reports.

  • Euroland’s manaufacturing purchasing managers index at the end of 2015 climbed to a 20-month high of 53.2, revised up 0.1 from its preliminary indication and a full-point above the 2015 average reading of 52.2, which was the best calendar year mean since 2011.
  • Within the eurozone, Italy’s PMI hit a 57-month high (55.6).  Ireland’s 54.2 score was a 5-month peak.  Germany’s 53.2 represents a 4-month high, and the French score of 51.4 was its best reading in 21 months.  Likewise, the 50.2 Greek result was a 19-month high.  All reporting eurozone nations experienced expansions of production and factory jobs, along with declining inflationary pressure.
  • Japan’s manufacturing PMI (52.6) matched November’s 20-month high.
  • The Swiss PMI jumped 2.4 points to a 4-month high of 52.1.
  • Sweden’s PMI increased 1.1 points to 56.0 in December, the year’s best score.
  • The Czeck PMI, 55.6, implied the fastest expansion rate since August. 
  • Turkey’s factory PMI advanced 1.3 points to a 13-month high of 52.2.
  • The South Korean PMI rose 1.6 points to a 9-month high of 50.7.  That was the first above-50 score since March.
  • Taiwan’s PMI also surpassed 50 for the first time since March, attaining a level of 51.7.
  • Vietnam’s PMI, 51.3 and a 4-month high, followed scores of 49.4 in November 50.1 in October, and 49.5 in September.
  • Malaysia’s PMI rose a full point to a 2-month high of 48.0.
  • Indonesia’s PMI of 47.8 exceeded November’s 46.9 reading but only matched October’s score.

There were some disappointing PMI results, too.

  • The British factory manufacturing index fell 0.6 points to a 3-month low and, at 51.9, was almost back to its long-term average of 51.5.  Growth in orders and production slowed.
  • Australia’s 51.9 reading was down 0.6 points.
  • Brazil’s 45.6 PMI was at a 3-month high but below 46.0 for a third straight month in December.
  • The Polish 52.1 was no different from November’s 2-month low.
  • Hungary’s factory PMI plunged 6.7 points to 49.1, lowest since July.

The New Zealand market was closed for the extended New Years Day holiday.

British M4 money grew 0.5% on year in November.  The Bank of England announced a rise of mortgage applications to 70.4K in the month from 69.9K in October.

German CPI inflation slowed to a considerably lower-than-forecast 0.3% in December.  In harmonized terms, inflation also slowed, dropping to 0.2% in the year to December. 

Indonesian CPI inflation fell 1.5 percentage points to 3.35% in December, lowest since 2010.

Consumer prices in Thailand fell 0.9% between December 2014 and last month.

Turkey’s CPI and PPI, on the other hand, rose 8.8% and 5.7% in year to December.  Both on-year changes were larger than those posted in November.

Real GDP in Singapore grew 5.7% at a seasonally adjusted annualized rate between 3Q and 4Q, resulting in a 0.2-percentage point acceleration of on-year growth to 2.0%.

The value and volume of retail sales in Hong Kong fell by 6.0% and 7.8% between November 2014 and November 2015.

The U.S. manufacturing purchasing managers survey results and construction spending data will be released later this morning.

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

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