Markets Experiencing Most Panic of 2016

February 11, 2016

Ten-year sovereign debt yields fell overnight by 16 basis points in the U.K. and 4 bps in Germany.  The futures indication for the 10-year U.S. Treasury is an 11-basis point yield decline to 1.56%.

Gold recorded its greatest daily leap in a year.  It’s up 3.3% on balance at $1,236.27 per troy ounce.

West Texas Intermediate crude oil at $26.37 is currently trading near its overnight low.  It’s down 3.9% in the session and closing in on January’s 12-year low.

Japan is closed for Coming of Age Day.  Meanwhile, the yen hit highs on a flight to safety of 110.98 per dollar and 125.78 per euro.  Speculation is rising that the Bank of Japan will soon undertake massive intervention again.

Share prices have fallen today by 2.9% in South Korea where geopolitical tensions with North Korea have intensified.  Markets closed down 4.4% in Hong Kong, 3.4% in India and 6.3% in Singapore.

In Europe, share prices have dropped so far by 6.4% today in Greece, 5.2% in Italy, 4.4% in Spain, 4.0% in France, 3.0% in Switzerland, 2.8% in Germany and 2.4% in Great Britain.

Futures trading in U.S. shares point to opening loss of around 300 points lower.  Similar percentage drops in the S&P and Nasdaq are also indicated.

The dollar rose 1.0% against sterling but fell 1.0% relative to the yen.  It’s up 0.2% versus the loonie and down 0.2% against the euro.  There have been gains of 0.5% versus the Australian dollar but scant net change relative to the Swiss franc, kiwi and yuan.

Many Factors are contributing to this critical mass of high angst:

  • Janet Yellen dispelled hope that Fed officials are even considering a reversal of December’s interest rate hike.
  • The Swedish Riksbank sent the krona to a 6-month low with a surprise further 15-basis point cut of its repo rate to negative 0.50%.  An accompanying statement said the rate may be cut further and sliced projected inflation for 2016 and 2017.
  • The New Hampshire primary produced a huge victory for those who seek a political revolution in America.  The rest of the world is holding its breath.
  • Tensions between the Koreas are escalating.  
  • Western governments are ill-equipped to handle Europe’s migrant crisis, a newly assertive Russia, the anarchy of terrorism, and technology that’s advancing at a much more rapid pace than social evolution.
  • Trust has eroded in key institutions.  The marketplace itself appears to be run increasingly by robots on automatic pilot.
  • U.S. fourth-quarter corporate earnings have been mostly disappointing. 
  • Fears are mounting that weakness in China and other emerging market economies is now infecting the United States.
  • Forecasts are proliferating of a coming financial/economic crisis that will dwarf 2007-08, and this time policymakers are not positioned to resist it.
  • Massive consumer, corporate, and public-sector debt.
  • Rumors are swirling that the European financial institutions are less solvent than assumed.
  • Even if the economic problems manage to be solved or blow over eventually, it will then be too late for planet earth to fix environmental damage caused by climate change including a shortage of water, and this will spell the end of the world as we know it.  Investors are cashing in their chips.

Janet Yellen reprises her Humphrey-Hawkins testimony today, this time before the Senate Banking Committee.  It would appear to be too late to rectify yesterday’s projection of a what-we-worry approach.

Scheduled U.S. data today are limited to weekly jobless insurance claims, but tomorrow’s arrivals are meaningful — retail sales, auto sales, consumer sentiment, import prices — plus European GDP and industrial production.

New Zealand’s manufacturing purchasing managers index rose 0.9 points in January to 57.9, highest in at least a year.  Expected CPI inflation in Australia, according to the TD-MI survey, stayed at 3.6% this month.

British GDP growth slowed in January according to the NIESR monthly estimate.  The Royal Institute of Chartered Surveyors British house price balance measure remained at 49% in January.

Swiss CPI inflation, which has been negative since late 2014, stayed at -1.3% last month.

Greek unemployment fell from 25.9% in November 2014 to 24.6% a year later.  Factory output in South Africa was 0.4% lower in December than a year earlier and posted no change between 2014 and 2015.

In the year to January, Hungarian consumer prices rose 0.9%, while the core CPI went up 1.5%.  Dutch consumer prices rose 0.6% in the same span.  Dutch retail sales were flat on month in December but 3.3% higher than a year earlier.

Turkey’s current account deficit narrowed 26% last year to $32.2 billion.

Bangko Sentral ng Pilipinas announced that officials again decided not to change monetary policy settings.  The Filipino overnight lending and borrowing rates have been at 6.0% and 4.0% since a 25-basis point hike in September 2014.

Just in:  U.S. new jobless insurance claims fell 16K to 269K.  Their average over the latest four weeks of 281-1/4K is marginally above the 278-3/4K average in the prior four weeks to January 9.

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

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