Some Investor Caution Returns

April 14, 2016

Yesterday’s stock market rally carried into Asia but not Europe.

  • Share prices rose 3.2% in Japan, 1.3% in Australia, 1.8% in South Korea, 1.9% in India and 0.5% in China.
  • Equities in Europe have settled back 0.7% in Greece, 0.4% in Spain and Italy, and 0.1% in the U.K. and France.  The German Dax is flat so far.
  • A dip in U.S. stocks at the open is suggested by futures.

Oil stagnated.  West Texas Intermediate oil at $41.81 per barrel is up 0.1% ahead of Sunday’s meeting of producing nations in Doha.

Gold (-0.2% to $1,239.95 per ounce) and several other metals like zinc, copper and nickel settled back.

The dollar climbed 0.7% against the kiwi, 0.4% versus sterling, 0.2% vis-a-vis the yuan and 0.1% against the euro and loonie but is down 0.7% relative to the kiwi and 0.2% versus the Swiss franc.

The 10-year British gilt yield rose three basis points.  Japan’s 10-year JGB slipped back two bp to -0.10%, and the German bund yield is flat at 0.13%.

In central banking news,

  • Singapore monetary authorities stopped a six-year-long policy of gradual currency appreciation, citing subdued growth and inflation.  The action was not anticipated.
  • The Bank of England’s Monetary Policy Committee voted unanimously as expected to keep the Bank Rate at 0.5% and not to change the asset purchase program ceiling of GBP 375 billion, which was reached in late 2012.  While officials foresee a rising bank rate as more likely than not sometime in the forecast horizon, they continue to stress that the pace will be historically slow and peak at a lower level than in prior cycles.
  • The governor of the Bank of Canada warned that the stronger exchange rate could dampen exports.  The central bank yesterday did not change its overnight rate target.
  • The Federal Reserve Beige Book of regional trends, which was released yesterday, observed positive growth in all but one of a dozen districts but noted uncertainties, too.

In data news overnight,

  • CPI inflation in the eurozone rose to zero in March versus -0.2% in February and +0.3% in January.  Core inflation returned to 1.0% from 0.8% the month before.  Harmonized inflation in the big four members stood at 0.1% in Germany, -0.1% in France, -0.2% in Italy and -1.0% in Spain.  In the prior year to March 2015, total consumer prices dipped 0.1%.
  • Australian labor statistics were better than forecast in March.  The jobless rate dropped to 5.7% from 5.8% in February and 6.0% in January.  A net 26.1K rise in jobs broke a streak of three consecutive declines totaling 8.9K.
  • New Zealand’s manufacturing purchasing managers index fell 1.2 points to 54.7 in March, a 4-month low.
  • The British RICs house price balance index unexpectedly dropped sharply from a 6-month high of 50% in February to a 9-month low of 42% in March.
  • The Swiss producer price/import price index was flat on month and 4.7% lower on year in March. 
  • Stock and bond transactions between Japan and the rest of the world generated a large net capital inflow for a second straight week.  The inflow last week was JPY 2.34 trillion following a JPY 2.05 trillion net inflow in the week to April 1.
  • There was further evidence of continuing disinflation in Europe.  In the year to March, consumer prices slipped 0.2% in Italy and 0.3% in Finland.  Such rose 0.7% in Austria, a 4-month low.  Greek import price deflation accelerated to negative 9.5% in February from -6.7% in January.
  • Wholesale turnover in South Africa was 0.8% greater than a year earlier in February.

Several themes weighed on psychology.  The U.S. is looking resilient with better-than-feared corporate earnings, and this suggests that more than one interest rate hike this year lies in store.  Inflation overseas remains deficient.  There’s concern British voters may opt to abandon European Union membership.  The U.S. election is fraught with uncertainty.  Global growth has been revised downward by many forecasters, including the IMF.  Passive aggressive currency warfare is lurking.  Sunday’s meeting of energy producers could deliver less than hoped.

Still to come today:  U.S. jobless insurance claims and consumer prices, public remarks from Powell and Lockhart of the Fed, and Peru’s latest interest rate decision.

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

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