A Market Respite… But for How Long?

February 12, 2016

Share prices in Europe have recovered part of yesterday’s declines, rising so far this Friday by 2.6% in Italy, 1.7% in Greece and Great Britain, 1.5% in Germany, 1.3% in Switzerland, 1.2% in France and 1.0% in Spain.

Markets in the Pacific Basin faired worse.  Stocks dropped 1.5% in Hong Kong, 1.3% in Indonesia, 1.2% in Australia and a whopping 5.4% in Japan whose market was closed on Thursday.

There’s been a rumor that OPEC may be willing to cut production.  West Texas Intermediate oil, which began rallying yesterday afternoon, has advanced another 4.7% to $27.45 per barrel.   Gold retreated 0.8% to $1,237.35 per troy ounce.

10 year sovereign debt yields are higher by seven basis points in the U.K., 4 bps in Japan, and three bps in Germany.  In futures trading, the 10-year Treasury has extended its rise to 1.69%, 13 bps higher than 24 hours ago.

The dollar recovered 0.4% against the euro, 0.3% versus the Swiss franc and 0.2% relative to the yen.  The dollar has gained even more sharply against some emerging market currencies like the South Korean won and Thai baht but is down 0.3% against the yuan and 0.2% relative to sterling.

The two main data releases of the day are European fourth-quarter GDP and U.S. retail sales.

Euroland’s real GDP rose 0.3% on quarter, same as in 3Q and 1.5% on year.  The result is close to market expectations.

  • German GDP also advanced 0.3% in 4Q, which cut the on-year increase to 1.3% from 1.7% in the year to 3Q.
  • French GDP growth slowed to 0.2% on quarter but picked up to 1.3% on year.
  • Italian GDP undershot expectations with only a 0.1% quarterly uptick and a year-on-year gain of 1.1%.
  • Spanish quarterly GDP growth of 0.8% matched the 3Q result and was associated with 4Q-over-4Q growth of 3.5%.
  • Dutch GDP went up 0.3% from 3Q, trimming the on-year pace to 1.2% from 1.9%.
  • Greek GDP posted a second successive quarterly contraction, this time of 0.6% after -1.4% in 3Q.  In on-year terms, GDP slumped 1.9%.
  • Portuguese GDP grew 0.2% after a flat third quarter, but the on-year pace still slowed 0.2 percentage points to 1.2%.
  • Austrian GDP was flat in both 3Q and 4Q but recorded a 1.1% advance between the final quarters of 2014 and 2015.
  • Belgian GDP grew 0.3% last quarter and by 1.5% from a year earlier.

Several eastern European GDP growth results were also unveiled today.  For example,

  • Hungarian GDP increased 1.0% last quarter and 3.0% between 4Q14 and 4Q15.
  • Polish GDP went up 1.1% on quarter and 3.6% on year.
  • Romanian GDP advanced 1.1% (3.8% on year).

Better-than-forecast U.S. retail sales growth of 0.2% last month boosted the 12-month rate of increase to 3.4% from 2.4%.  Excluding motor vehicles and parts, the monthly increase was 0.1%, but that component went up 0.6%.

U.S. import and export prices in January reflect continuing global disinflation.  Import prices dropped 1.1% for a second straight month.  They are 6.2% lower than a year ago and have fallen 14.5% over the past two years.  Export prices declined 0.8%, recording their eighth straight decrease, and such have fallen by 10.4% over the last two years.

The biggest data release disappointment of the day came from a 1.0% drop in eurozone industrial production.  This was the fourth monthly decline in the final five months of 2015, causing the 12-month change in output to swing from +1,4% in November to -1.3% in December.  Between October and December, industrial production dropped 1.5% or 8.9% at an annualized rate.  In comparisons of industrial output in December 2014 to a year later, there were declines of 9.4% in The Netherlands, 2.3% in Germany, 1.0% in Italy, and 0.8% in France. 

Indian industrial production unexpectedly was 1.3% weaker in December than a year earlier, while India’s CPI increased 5.7% in the year to January.

Final German CPI figures confirmed the preliminary estimates of a monthly 0.8% drop in January but an acceleration in on-year inflation to 0.5%.  German inflation averaged 0.3% in 2015 after 0.9% in 2014.  German real GDP growth averaged 1.7% after 1.6%.

Construction output in the U.K. leaped 1.5% in December, the greatest monthly advance in eight months, but was just 0.5% higher than in the final month of 2014.

The German wholesale price index dropped another 0.4% in January and was 1.0% below a year earlier.  Mineral oil prices fell 3.9% on month and 9.3% on year.

Japanese stock and bond transactions generated a 2.247 trillion yen net capital outflow last week after near balance in the final week of January.

Indonesia’s current account deficit widened to $5.19 billion last quarter (2.39% of GDP) from a ratio of 1.86% of GDP in the third quarter of 2015.

The Central Reserve Bank of Peru raised its key interest rate for a third straight month by 25 basis points, and its now at 4.25%.  There have been four such increases since last September engineered in the face of signs that expected inflation is creeping higher.  Actual inflation also exceeds target.

The Central Bank of Chile, in contrast, left its main interest rate, which had been raised in both October and December, unchanged at 3.5%.

Upbeat comments were made overnight by the Governor of the Reserve Bank of Australia, who endorsed a wait-and-see response to recent market turmoil and soft Chinese data, and the German finance minister, who characterized recent eurozone data as fine.

Still Ahead: the U. Michigan/Reuters index of U.S. consumer confidence.

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

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