Friday Down-Note to End an Up Week

February 19, 2016

Stock markets and sovereign debt yields overnight followed oil lower.

  • West Texas Intermediate crude oil fell 1.8% to $30.23 per barrel.
  • Ten-year British gilts, German bunds, and Japanese JGB yields dropped by six, two and one basis points.
  • The Japanese Nikkei-225 slumped 1.4%, slipping back under the 16K level.
  • Elsewhere in the Pacific Basin, share prices declined 1.7% in Indonesia, 0.8% in Australia, 0.4% in Hong Kong, and 0.1% in China.
  • Stocks in Europe are so far down 3.1% in Greece, 0.9% in Germany, 1.4% in Spain, 1.2% in Italy, 0.7% in France and 0.4% in the U.K. and Switzerland.
  • The yen attracted safe haven-seeking capital and rose 0.3% against the dollar.  The Swiss franc and euro are 0.2% and 0.1% firmer versus the dollar.
  • The dollar in turn gained 0.3% relative to sterling, the kiwi and the loonie.  An even bigger advance of  0.7% versus the Aussie dollar was encouraged by a comment from a Reserve Bank of Australia official that the currency remains higher than fundamentals now justify.
  • The dollar also edged 0.1% higher against the yuan.

A couple of Bank of England officials, Weale and Cunliffe, expressed the view that economic fundamentals hadn’t changed enough to justify the extent of market repricing of the likely first central bank rate hike in the U.K..  That’s not indicated until 2019.

Minutes from the ECB’s January meeting strongly suggest more stimulus will be announced at next month’s meeting.

Japan’s all industry index for December was a real clunker of a report.  This monthly proxy of real GDP fell 0.9% following a 1.1% slide in November, sending the 12-month change below zero to -0.5%.  Construction declined 2.1% on month and 2.3% on year in December.  Industrial production slumped 1.7% (and to 1.9% below the year earlier level), while services fell 0.6% on month and edged up just 0.1% on year.  The all industry index on average rose 0.1% in 2014 and 0.5% in 2015.

Department store sales data brought more bad news for Japan, posting a 1.9% on-year decline in January versus a 0.1% uptick in December and a 2.7% drop in November.

South Korean producer prices registered their seventh consecutive monthly decline in January, when the index was at its lowest level since March 2010 and 3.3% below the year-earlier level.

British retail sales volume surprised analysts by jumping 2.3% on month in January, three time greater than forecast, and posting a 5.2% year-over-year increase.  Core sales also climbed 2.3% on month.

Britain’s public sector net borrowing in the first ten months of the current fiscal year, which ends next month, equaled GBP 40.4 billion, 23.5% less than a year earlier.  The public sector net cash requirement dropped 44.7% to GBP 30.8 billion.  British debt in January equaled 98.2% of GDP, however.

Producer price data for Germany in January exuded more deflation.  The PPI dropped 0.7% on month, with energy slumping 2.5% and all other producer prices collectively edging down 0.1%.  The PPI was 2.4% lower than a year before, led by energy’s 7.3% plunge.  Other producer prices were altogether 0.6% lower than in January 2015.

Finnish consumer prices in January were unchanged from a year earlier.

Dutch consumer spending decelerated from a 12-month increase of 1.9% in October to 0.8% in November and 0.6% in the final month of 2015.  Consumer confidence in The Netherlands printed at negative 1 in February, a 12-month low.  Consumer sentiment also fell in Denmark, where the index was 4.0 this month versus 4.6 in January.  In Turkey, consumer confidence weakened to a 3-month low in February.

Swedish unemployment in January of 7.5% was 0.9 percentage points lower than a year before.  The seasonally adjusted 7.0% jobless rate was unchanged from December.

Greece recorded a 780 million euro current account deficit in December, almost 60% narrower than a year earlier.  The trade deficit in 2015 was EUR 7.5 million, down from EUR 4.0 billion in 2014.

Still to come:  U.S. and Canadian consumer prices, Canadian retail sales, Belgian consumer sentiment, and the preliminary estimate of eurozone consumer confidence.  An interest rate decision is also due from the Central Bank of Colombia.

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

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