Oil Rebounds and Another Warning against Rapid Yen Swings

April 8, 2016

West Texas Intermediate crude oil rose 3.5% to $37.56 per barrel, taking some shine of the risk averse mood of recent sessions.

There’s some hope that a scheduled OPEC meeting later this month could produce an accord with Russia to limit production.

Share prices in Europe have rebounded 3.2% in Italy, 1.6% in Greece, 1.3% in Spain, 1.0% in Germany, 0.9% in France, 0.8% in the U.K. and 0.4% in Switzerland.

The U.S. downtrend on Thursday had earlier extended into Asian equity trading, where stocks fell by 0.5% in Japan, 0.8% in China, 0.5% in New Zealand and Australia and 0.4% in Indonesia.

Ten-year sovereign debt yields are mixed, with a rise in British gilts of two basis points, a drop in Japan of three basis points and no change in German bunds.

Comex gold has slipped 0.4% to $1,235.07 per troy ounce.

The recently high-flying yen settled back 0.2% against the dollar.  Japanese Finance Minister Aso threatened counter-measures (meaning intervention) if the currency continues to climb rapidly and called abrupt swings either up or down inappropriate.

Against other major currencies, the dollar is down 0.5% against the Canadian and Australian monies, off 0.2% versus the kiwi and sterling, unchanged relative to the euro, and up 0.1% vis-a-vis the yuan and Swiss franc.

British industrial production and trade statistics were disappointing.

  • Industrial output fell 0.3% on month and 0.5% on year in February.  A 1.1% monthly slump in factory output far exceeded expectations.
  • The goods and services trade deficit narrowed just 7.5% on month to a greater-than-forecast GBP 4.84 billion.  A year earlier, such was GBP 3.5 billion.
  • The merchandise trade deficit remained extremely elevated in February at GBP 11.964 billion.

France and Greece also reported lower industrial production.  French output dropped 1.0% in February, cutting the 12-month rate of increase to 0.6% from 1.9% in January.  Greek production slumped 4.3% on month and 3.0% between February 2015 and February 2016.  Dutch factory output was flat in February compared to the previous month.  Finnish industrial output, on the other hand, went up 1.6% on month and 1.5% on year in February.

Japanese consumer sentiment recovered 1.6 points to a still very low reading of 41.7 in March.  This two-month high was otherwise the lowest since October.

Japan’s economy watchers index in March also bumped a bit upward to a two-month high 45.3 for current conditions, but the companion outlook data sereices fell 1.5 points to a mere 46.7.

Japan’s current account surplus of JPY 2.435 trillion in February was 63.8% wider than a year earlier.  The settlements-basis trade balance swung from a JPY 138 billion deficit in February 2015 to a JPY 425 billion surplus in February 2016, reflecting a 14.6% plunge in imports and a 5.5% drop in exports.  Along with net portfolio and direct investment inflows of JPY 9.52 trillion and JPY 1.53 trillion, Japan had a whopping JPY 13.48 trillion basis balance surplus in February.  The Basic balance combines long-term capital with the current account and is indicative of net pressure on a currency.  No wonder the yen is rising.

Japan’s seasonally adjusted current account surplus rose 16.2% from JPY 1.49 trillion in January to JPY 1.73 trillion in February.  The customs-clearance trade balance produced a JPY 510 billion surplus in the first twenty days of March compared to a JPY 106 billion deficit a year earlier.

Japanese bankruptcies continued their recent flip-flopping on-year batter, posting a drop of 13.2% in March after a rise of 4.5% in February, a decline of 6.4% in January, an uptick of 1.9% in December and a slide of 3.4% in November.

The Bank of Japan’s quarterly regional economic survey said 8 of 9 region remain on a moderate recovery trend but downgraded conditions in Tohoku.

Swiss CPI deflation deepened in March.  Consumer prices were 0.9% lower than a year earlier after dropping 0.8% on year in February.  The Swiss jobless rate edged up to 3.5% seasonally adjusted in March from 3.4% the month before.  Greek consumer prices, down 1.5% in the year to March, fell much more than forecast. Hungarian consumer prices in the same span slid 0.2%.

The German EUR 20 billion current account surplus and seasonally adjusted trade surplus of EUR 19.7 billion in February exceeded expectations.  Exports rebounded 1.3% on month.  The January-February current account surplus was 9.6% greater than a year earlier.

Romanian real GDP rose 3.8% between 4Q14 and 4Q15 as well as in 2015 as a whole.  That pace was better than the 3.0% growth rate in 2014.

The Bank of France’s business sentiment index, which had fallen 3 points in February, recouped a point to a reading of 99 in March, and that persuaded officials to revised projected first-quarter GDP growth to 0.4% from 0.3%.

Canadian March labor statistics will be released shortly. 

Esther George, President of the K.C. Federal Reserve, called undue delay in raising interest rates dangerous because of the risks of creating asset bubbles and causing the Fed eventually to tighten so rapidly as to produce a recession.  Chair Janet Yellen in remarks late yesterday said the U.S. is not in a bubble situation and predicted more rate increases will indeed follow.  Former Chair Ben Bernanke said monetary policy is too burdened with carrying the whole load of maintaining sufficient growth.

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

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