More Diversified Financial Market Movements

February 4, 2016

At least for today, it’s no longer a matter of risk-on or risk-off for all assets.  Some of this differentiation stems from more blatant currency warfare.

Yesteday’s revealed sharp decline in the U.S. non-manufacturing purchasing managers index triggered a dollar sell-off.  The U.S. currency today has fallen by an additional 0.7% against the euro and kiwi, 0.6% versus the Australian dollar, Canadian dollar and Swiss franc, and 0.4% relative to the yen. 

The dollar’s downturn lifted commodities.  West Texas Intermediate oil climbed another 0.7% today to $32.49 per barrel, and Comex gold is 0.3% higher at $1,146.28 per troy ounce.

Commodity-sensitive currencies have been better bid, and so have a number of emerging market currencies like the South Korean won and Malaysian ringgit.

Many stock markets in the Pacific Basin performed well today, gaining 1.5% in China and Indonesia, 2.1% in Australia, and 1.1% in South Korea and Hong Kong.

But the Japanese Nikkei sank 0.9%, and Taiwan’s market lost 0.8%.

And European equities have suffered from the euro’s relentless rise.  EUR/USD got as strong as $1.1220 earlier today.  Stocks in Europe are currently down 5.5% in Greece, 1.1% in Switzerland, 0.3% in France, and 0.1% in Germany and Italy.  But the British Ftse (0.9%) and Spanish IBEX (0.5%) have risen.

News from the Bank of England has been dovish.  In a unanimous Monetary Policy Committee decision to leave policy settings of a 0.50% Bank Rate and a GBP 375 billion limit on the asset purchase program unchanged, Ian McCafferty unexpectedly dropped his previous dissent that recommended a 25-basis point rate hike.  The central bank’s quarterly Inflation Report, moreover, cut projections on economic growth, the path of inflation, and wages.  The Bank Rate is not seen by officials changing during 2016 and its forecast levels in 1Q17 and 1Q18 have been sliced to 0.5% and 0.8% from a prior indication of 0.7% and 1.1%.

ECB President Draghi gave a speech siding clearly with acting sooner rather than later to inflation that still lies far beneath target.  He argued that the fact that inflation is low everywhere and that weak global demand and lower oil prices, even while exogenous, are no excuse for inaction or adopting a wait-and-see approach.

The Czech National Bank kept its policy interest rate unchanged at 0.05% as expected and reaffirmed that intervention will continue to be used to ensure that the koruna does not strengthen beyond 27 per euro, which also was expected.

Bank of Japan minutes from the Policy Board’s December meeting provide no hint of a predisposition to adopt a negative interest rate as was done at the subsequent January meeting, nor of the dispersion of board member views that is reflected in the 5-4 vote of approval for a negative interest rate.

Retail purchasing manager indices for January worsened in Europe.  Euroland’s index slid to a 2-month low of 48.9.  Germany’s index fell 1.0 points to a 16-month low of 49.5, and the Italian retail PMI dropped 2.3 points to a 2-month low.  Although at a 3-month high, the French retail PMI of 48.9 was below the 50 no-change line of demarcation for a third month in a row.  Indeed, all four of these measures signaled a contraction of retail activity last month.  Six months earlier, they were all above 50, signaling broad-based expansion.

The German construction purchasing managers index increased 2.4 points to a 58-month high of 57.9 in January, and the residential housing component was close to a 9-year peak.

Australia’s Performance of Services index posted a fourth straight sub-50 score, 48.4, but such was 2.1 points better than the December reading and at a 3-month high.  The National Australia Bank reported a 3-point increase to +4 in its fourth-quarter Australia business confidence index but a 1-point dip in business conditions last quarter to +9.

According to JP Morgan compilations, global composite PMI and service-sector PMI readings in January of 52.5 and 52.8 each constituted a 13-month low.

From a 22-year low of 79.6 in December, South Africa’s business sentiment index recovered 0.4 to print at 80.0 in January.  November’s score was 82.7.

Switzerland’s consumer climate index recovered four points in January to -14 but remained weaker than back-to-back minus six scores in September and October.

On-year growth in British car registrations, a proxy for new sales, slowed abruptly to 2.9% in January from 8.4% in December.  But January’s level was the best for the year’s first calendar month since 2005.  The Halifax U.K. house price index went up 1.7% on month in January and recorded a 9.7% advance from a year earlier, its strongest on-year gain since a similar result in October.

Consumer confidence in Thailand fell back to 75.5 last month from 76.1 in December but was above November’s reading of 74.6.

Japanese stock and bond transactions last week generated a net JPY 71.4 billion outflow, down from a 274 billion yen outflow in the prior week.

Consumer prices in Cyprus fell 1.3% on year in January after a 12-month slide of 1.2% recorded at end-2015.

Just in:  a crushingly disappointing U.S. fourth-quarter report on productivity and unit labor costs.  Non-farm productivity plunged 3.0% on quarter, which halved the year-over-year increase to just 0.3%.  Businesses are retrenching in the face of enormous and multiple uncertainties.  Unit labor costs grew 2.8% between the final quarters of 2014 and 2015.

U.S. jobless insurance claims last week increased 8K to 285K.  It was reported on Wednesday that the jobs component of the non-manufacturing U.S. purchasing managers survey dropped 4.6 points to a reading of 52.1.

U.S. factory orders get released in a little over an hour from now.

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

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