Markets Step Closer to the Abyss

January 15, 2016

West Texas Intermediate oil plunged 4.7% overnight on signs that sanctions against Iranian exports will be lifted next week, boosting world supply.

Commodity-sensitive currencies like the Aussie and New Zealand dollars (down 1.7% each) and the Canadian dollar (off 0.9% against its U.S. counterpart) fell sharply overnight.

China’s Shanghai composite index sank 3.6%, bringing its cumulative drop since last month’s high to to 21% and completing a total reversal of the post-September rally.  A report surfaced that Chinese banks will stop allowing small-cap shares as loan collateral.

Emerging market currencies like the Russian ruble lost substantial ground.  Hong Kong’s pegged currency posted the greatest two-day slide in 23 years.

In Pacific Rim stock markets other than China, share prices lost 2.1% in Hong Kong, 1.3% in India, 1.1% in South Korea but just 0.4% in Japan.  The German, British, Italian, Greek, Swiss, Spanish and French equity exchanges have lost between 1.3% and 1.8% already today.  Such appear likely to soon surpass a 20% drop from peak, confirming a bear market.  U.S. futures indicate a likely reversal of all of yesterday’s recovery and then some. 

Ten-year sovereign debt yields are down three basis points in the U.K. and one basis point in Japan and Germany. 

Donald Trump was the apparent winner of last night’s Republican candidates debate.  Europeans are even more frightened than U.S. Democratic Party supporters of a Trump presidency.

The yen continues to attract safe haven-seeking capital.  Japan’s currency rose 0.6% overnight against the dollar, which also fell 0.4% relative to the euro and 0.1% vis-a-vis the Swiss franc and in-country yuan.  The offshore yuan slid 0.2%, in comparison, and sterling also remained on its heels, losing another 0.5% against the U.S. currency.

The Central Reserve Bank of Peru hiked its policy interest rate by 25 basis points to 4.0%.  This was the third such increase since September, reversing all but one of four cuts between November 2013 and January 2015.

The Central Bank of Chile, which boosted its benchmark rate by 25 basis points each in October and December, left such unchanged at 3.5% this month by released a statement that implied likely additional tightening in 2016.  Emerging economies in Latin America and elsewhere have seen currency depreciation generate undesirable upward pressure on inflation.

Chinese money and bank lending figures were reported for December.  New loans totaled 598 billion yuan, some 15% less than forecast and down a similar amount from November’s total.  M2 money growth slowed to a 3-month low of 13.3%.  M1 on-year growth slowed to 15.2% from 15.7% in November and 14% in October, but M0 growth accelerated to a 9-month high of 4.9%.

The eurozone trade surplus widened to a 10-month high of EUR 22.7 billion in November from EUR 19.8 billion in each of the prior two months.  Exports posted on-month growth of 2.8%, most since February.  Imports edged 0.1% lower.  The unadjusted year-to-date 11-month surplus of EUR 221.1 billion was 37.6% greater than the unadjusted surplus accrued in January-November 2014.

Construction output in the U.K. surprised analysts with a 0.5% monthly slide instead of a gain of 0.5% that had been predicted.  Construction output fell 1.1% between November 2014 and November 2015.

Food prices in New Zealand fell 1.3% on year in December.  Australian home loans rose 1.8% on month in November.

Stock and bond transactions in Japan generated a net JPY 1.089 trillion capital inflow during the first week of 2016.

Bank of Japan Governor Kuroda denied any plans at the moment to augment monetary stimulus.  Before that happens, Japan would need to suffer a clear setback in the upward trend of core inflation.

Consumer prices in the year to December were unchanged in Spain and up 0.1% in Italy.  Danish producer prices dropped 1.5% on year.

Scheduled U.S. data today feature retail sales, industrial production and producer prices.  Pending home sales and the U. Michigan consumer sentiment index are also getting reported.

Romanian real GDP advanced 1.4% on quarter and 3.6% on year in the third quarter of 2015. 

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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