Intensifying Risk Aversion

January 20, 2016

Share prices closed down 4.1% in Hong Kong, 3.7% (or 632 points) in Japan, 3.0% in Singapore, 2.3% in South Korea, 2.0% in Taiwan, 1.7% in India, 1.5% in China, 1.4% in Indonesia and 1.3% in Australia.  Equity declines today in Europe so far amount to 6.8% in Greece, 3.2% in France, 3.1% in Switzerland, 3.0% in the U.K., 2.9% in Italy, and 2.8% in Germany.  Emerging market stocks sank to their lowest average level since May 2009.  A number of economists and market technicians have released recent forecasts predicting a 50-80% plunge in U.S. stock values this year.

The U.S. 10-year Treasury yield in futures trading slid 7 basis points and below the 2.0% threshold to 1.98% versus 2.30% on December 16 when Janet Yellen began her press conference on December 16 explaining why the federal funds rate had to be hiked then.  WTI oil then was at $36.16 per barrel, 32.4% above today’s low of $27.32 per barrel.

The 10-year British gilt and German bund yields fell today by five and four basis points, respectively.

Oil has fallen 2.9% on balance to a 12-year low. Gold is 0.7% firmer at $1,094.80 per troy ounce.

The dollar is unchanged overnight on balance against the Swiss franc, Chinese yuan and sterling.  But dollar/yen sank to a one-year low of 115.97.  The Canadian dollar lost another 0.4% and has crumbled 6.3% since the Fed rate hike.  The Bank of Canada today will announce its latest interest rate decision, which many analysts believe could be a cut given the plunge in energy prices.  The U.S. dollar appreciated 0.8% and 0.7% against the Australian and New Zealand dollars. 

Speculation is rapidly on the rise that the Hong Kong dollar peg at 7.8 HKD per USD since 1983 will soon be abandoned.

The Russian ruble and Mexican peso touched record lows today of 80.93/USD and 18.48/USD.  There is talk to of a possible Saudi riyal devaluation.

Ron Paul, the Republican presidential candidate, predicts a bigger global financial crisis than 2007-9.

Today begins the last year of Barrack Obama’s presidency.  The common denominator of the nomination races of the Republican and Democratic parties is that candidate with extreme views are being taken more seriously at this stage of the campaign than seen before.  Trust in mainstream institutions of business and government has become severely eroded.

Against such a backdrop, chances are rising for a surprise emergency policy action by some agency to halt this spiral of fear.  Politicians and leaders of industry are meanwhile gathered in Davos, Switzerland, for the annual World Economic Forum, which began today and runs through the rest of the week.

Consumer prices in New Zealand dropped 0.5% between 3Q15 and 4Q15.  The on-year uptick of just 0.1% was down from a year-on-year increase of 0.4% in the third quarter and matched the on-year low touched in the first quarter of last year.  Home sales slowed to 3.5% in December from a 12-month increase of 8.5% in November.

German producer prices slumped 0.5% in December.  Such was the eighth consecutive month in which the PPI failed to increase.  Producer prices fell 2.3% on year in December, with energy sinking 6.8% and all other PPI items collectively dropping 0.6%.  The average decline in 2015 was 1.8% compared to calendar year producer price drops of 1.0% in 2014 and 0.1% in 2013.

In Britain, labor statistics were released, showing that the claimant count of unemployment contracted by 4.3K in December after a 2.2K drop in November.  Average weekly earnings decelerated to on-year growth of 2.0% in September-November from 2.4% in August-October.  Regular pay rose 1.9% in the year to September-November.  The ILO-basis jobless rate ticked south by 0.1 of a percentage point to 5.1% in September-November.

Chinese foreign direct investment swung from a 1.9% on-year rise in November to a 5.8% drop in December, its first on-year drop in 16 months.  FDI rose 6.4% on average last year and crested at 22% back in August.

Eurozone home prices declined 0.6% last quarter relative to 3Q and posted a smaller on-year advance of 0.4%.

The Swiss ZEW expectations index, a gauge of investor sentiment toward that economy, dived to a January reading of -3 from +16.6 in December and zero in November.

South African consumer prices rose 5.2% on year in December but slowed from a calendar year inflation rate of 6.1% in 2014 to 4.6% on average in 2015.

Malaysian consumer prices posted on-year advances of 2.7% in December, 2.6% in November and 2.1% in 2015 as a whole.

South African retail sales in September-November were 0.9% greater than in the previous three-month period, but November sales surpassed their year-earlier level by 3.9%.

Icelandic consumer price inflation ended last year with a December-over-December 0.8% increase.

The Greek current account deficit of EUR 1.217 billion in November compared unfavorably with a EUR 314 million surplus in October but was 18.3% smaller than in November 2014.

Westpac’s consumer sentiment index for Australia fell 3.5% this month on top of a 0.8% dip in December.

U.S. consumer prices dipped 0.1% on month but posted a 0.7% 12-month rate of increase after 0.5% in the year to November.  In the twelve months to December in previous years, the CPI went up 0.8% in 2014, 1.5% in 2013, 1.7% in 2012, 3.0% in 2011, and 1.5% in 2010.  Core inflation in December 2015 of 2.1% was somewhat higher than 1.6% in December 2014 and 1.7% in December 2013.

The U.S. report on housing starts and building permits also arrives today.  Brazil and Canada have scheduled central bank interest rate announcements.

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

Tags: , , , ,


Comments are closed.