Dismal Economic Data Depressed Sovereign Debt Yields

March 8, 2016

Ten-year sovereign debt yields fell overnight by ten basis points in the U.K., four bps in Japan, three bps in Germany, and six bps in U.S. Treasury futures.  The 10-year Japanese JGB touched a record low of -0.10%.

A second estimate of fourth-quarter real GDP was released for both the eurozone and Japan.  Euroland’s growth of 0.3% (1.1% at a seasonally adjusted annualized rate saar) was unchanged from the preliminary indication and matched the third quarter’s result.  Japanese GDP contracted 1.1% saar between 3Q and 4Q, slightly less than first measured.  Along with U.S. growth of 1.0% saar, economic growth in those three economies, which collectively represent a third of global GDP, equaled just 0.78% saar in the final quarter of 2015.

China experienced a $32.59 billion trade surplus in February, half the size in January and smallest since last March.  Exports plunged 25.4% on year, albeit from a high base (exports in February 2015 were 48.3% greater than in February 2014).  The distortion was caused by the timing of the Chinese New Year holiday.  Imports last month were 13.8% below the year-earlier level.

A spate of other weak Japanese statistics got reported, too.  Consumer confidence fell 2.4 points to a 13-month low of 40.1 in February.  The Japanese economy watchers index, a gauge of changes in what service sector workers like taxi drivers observe in the economy, fell 2.0 points to a reading of 44.6 in February, lowest since January 2015.  The outlook component dropped 1.3 points to 48.2.  Japanese bankruptcies were 4.5% greater in February than a year earlier.  Back in September, there had been an on-year plunge of 18.6% in bankruptcies. 

Japan’s current account and settlements-trade figures showed exports and imports in January plunging 3.0% and 5.1% on month, respectively, and by 15.4% and 19.8% on year.  The current account surplus of JPY 521 billion was five times greater than a year earlier; a seasonally adjusted surplus of JPY 1.492 trillion fell between December’s JPY 1.693 trillion and November’s JPY 1.424 trillion.  Japanese bank lending remains extremely low, slowing to an on-year rise of 2.2% in February versus 2.4% in January and 2.3% in the final quarter of 2015.

The NFIB index of U.S. small business sentiment fell another full point to a reading of 92.9 in February, at least a 2-year low.

Comex gold touched a 13-month high and on balance is 0.6% above yesterday’s close.  But non-precious metals like copper and nickel fell at least 1.0%.

West Texas Intermediate oil dipped 0.1% to $37.86 per barrel.

The dollar is narrowly mixed, with gains of 0.4% against the loonie, 0.3% versus sterling, and 0.2% relative to the Australian and New Zealand monies.  The dollar has also fallen 0.3% against the yen, 0.2% versus the yuan and Swiss franc and 0.1% relative to the euro.

Share prices closed down 1.6% in Singapore, 1.0% in Hong Kong, 0.8% in Japan, 0.7% in Australia, and 0.6% in South Korea.  In Europe, stocks are down 0.6% in France, 0.4% in Switzerland and Britain, and 0.3% in Germany, but there have been gains of 1.3% in Greece, 0.3% in Spain, and 0.2% in Italy.

A closer examination of Japan’s national income accounts reveals contractions of 3.4% saar in personal consumption, 4.7% in residential investment, 12.7% in public works and 3.3% in exports.  Real GDP rose just 0.7% between 4Q14 and 4Q15, and the GDP price deflator went up 1.5%.  Inventories exerted a 0.2 percentage point (ppt) drag on 4Q-over-3Q growth but enhanced on-year GDP growth by 0.7 ppts.

Between 4Q14 and 4Q15 among eurozone members, real GDP went up 1.4% in France, 1.3% in Germany, 1.0% in Spain, 3.5% in Spain, 1.4% in Belgium, 1.3% in Portugal but contracted 0.8% in Greece.  Between the third and fourth quarters of last year, Euroland GDP growth got positive contributions of 0.3 percentage points (ppts) from business investment and 0.1 ppt each from personal consumption, inventory building, and government consumption, but net exports exerted a 0.3-ppt drag.

Swiss consumer prices rose 0.2% in February, their first monthly advance since October.  This trimmed the 12-month rate of CPI decline to 0.8% from 1.3%.  Switzerland’s seasonally adjusted jobless rate stayed at 3.4% in February.

Same-store retail sales in the U.K. returned to December’s 12-month uptick of 0.1% in February after spiking to 2.6% in January.

Reserve Bank of Australia Deputy Governor Lowe said weak wage pressure enables the accommodative monetary policy stance to continue and might even create scope for further easing.

Australia’s business confidence index had the same reading of +3 in February as in three of the prior four months.  Business conditions improved to +8 from +5 the month before.

The best piece of economic news today was a 3.3% jump in German industrial production in January, which lifted the 12-month rate of change to +2.2% from negative 1.3%. 

France recorded a EUR 3.7 billion trade deficit and a EUR 1.4 billion current account deficit in January.

GDP in Romania and Hungary increased 3.8% and 3.2% in the year to 4Q15.  In the year to February, Hungarian consumer prices firmed 0.3%, but consumer prices in Cyprus fell by 0.8%.  Turkish industrial production climbed 1.0% in January and recorded on-year growth of 5.6%.  South Africa’s current account widened 21% on quarter to 208 billion rand in 4Q15.

Canadian building permits fell 9.8% in January, reversing most of December’s increase.  But housing starts in February recovered almost 29% to 212.6K last month.

There have been Iranian ballistic missile tests, a violation of the January agreement that eased sanctions on that country.

Republican presidential primaries are scheduled today in Idaho, Hawaii, Michigan and Mississippi.  Democratic primaries are scheduled in Michigan and Mississippi.

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

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