Grim News Keeps Piling On

January 28, 2016

The Chinese Shanghai Composite Stock index slumped another 2.9% overnight.

Markets reacted adversely to the FOMC statement, which did not explicitly back away from December’s message that the fed funds rate is likely to climb a full percentage point in 2016 but indicated that risks are more skewed to the downside now than before.

Economic sentiment in the eurozone fell more sharply than expected in January, dropping 1.7 points to a 5-month low of 105.0.  Consumer confidence and construction sector sentiment were at 3-month lows.  Service sector sentiment was at a 5-month low, and retail confidence matched December’s 5-month low.  The business climate index dropped 0.10 to 0.29 in January, a 5-month low.

British real GDP rose 0.5% (not annualized) last quarter after a 0.4% third-quarter increase.  On-year growth slowed further to 1.9% from 2.1% in the third quarter and to 2.2% in 2015 from 2.9% in 2014.  More disturbing, growth last quarter was not broadly balanced but rather concentrated in gains of 0.7% in services and 0.6% in agriculture.  On the other hand, activity of production industries, including manufacturing, fell 0.2%, and construction slid 0.1%.  The take-away is that it will be several more quarters before the Bank of England starts embarking on interest rate normalization.

The Confederation of British Industries’ monthly distributive trades index fell back 3 points to a reading in January of +16.

European stock markets are sharply lower, with drops so far of 2.7% in Italy, 1.7% in Switzerland, 1.4% in Germany, 1.1% in Spain, 1.0% in France, 0.9% in Greece and 0.8% in the United Kingdom.

Australian export prices fell 10.3% from end-2014 to end-2015 and by 18.5% over the past two years.  Import prices, by contrast, rose 2.7% over the two years, resulting in a steep deterioration of the economy’s terms of trade.

Japanese Economics Minister Amari, who faces corruption allegations, has resigned.  It’s a big blow to Prime Minister Abe and the program known as Abenomics.

Japanese retail sales fell 0.2% on month and 1.1% on year in December.  Sales declined 0.4% in 2015.

The Bank of Japan Policy Board met on the first day of a two-day meeting that will update growth and price forecasts.  Analysts do not expect quantitative stimulus to be increased or the target interest rate to be moved below zero, but the goal of 2% core inflation by the second half of the next fiscal year is increasingly jeopardized by the rising yen, which has emerged as a most-favored haven currency.  Overnight, however, the yen eased back 0.2% against the dollar.

The U.S. currency otherwise fell 0.7% against the Australian dollar, 0.5% versus the kiwi, 0.4% relative to sterling and 0.1% vis-a-vis the loonie, euro and Swiss franc.

German import prices sank 1.2% last month and 3.1% year over year.  Import prices fell 2.6% in 2013, 2.2% in 2014, and 2.6% in 2015.  Consumer prices in North Rhine Westphalia and Brandenburg posted on-month drops in January of 0.8%, while the Hesse and Saxony CPIs fell 0.9%.  January has a strong seasonal downward bias.  While consumer prices in all of Germany declined 0.8% on month, the 0.5% increase from January 2014 was the highest on-year increase in eight months.

Amid risk aversion, the ten-year German bund and British gilt yields fell by two and four basis points overnight.

WTI oil edged up 0.2%, while Comex gold fell by 0.5%.

Icelandic consumer prices dropped 0.6% in January, but the 12-month increase ticked up 0.1 percentage point to 2.1%.

The Spanish jobless rate last quarter was 20.9%.  Spanish retail sales rose 2.2% on year in December, less than the 3.6% advance in 2015 as a whole.  Irish retail sales fell 0.7% on month but rose 6.3% on year.

South African producer price inflation accelerated to a 12-month high of 4.8% in December.

Portuguese business confidence edged down 0.1 to a reading of 0.6 in January, but consumer sentiment improved from a very low base.

The Filipino GDP growth rate of 5.8% in 2015 was slightly slower than in 2014 and missed the official 7-8% target.

Swedish retail sales fell 1.5% on month and recorded a smaller on-year 3.4% increase in December.  Sweden recorded a SEK 19.5 billion trade surplus last year, 35% wider than in 2014.  Sweden’s jobless rate in December was 7.1%.  The unadjusted 6.7% was less than 7.0% in December 2014.

The Reserve Bank of New Zealand left its official cash rate at 2.5% but signaled a possible further easing in the future.

The South African Reserve Bank, which had been expected to tighten policy to support the beleaguered rand, increased its key interest rate to 6.75% from 6.25%.

U.S. durable goods orders plunged 5.1% last month, eight times faster than projected.

New U.S. jobless insurance claims dropped 16K last week to 278K, and the four-week average settled back to 283K.

U.S. data still to come today include the K.C. manufacturing index and pending home sales.

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

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