Risk Aversion Returns after Upbeat Monday

May 3, 2016

Stocks, Treasury yields, and oil prices faltered Tuesday for various reasons.

  • Disappointing Chinese, British and Irish manufacturing purchasing manager surveys reported.
  • Mediocre first-quarter U.S. corporate reports in the background.
  • EU Commission’s Spring Forecast revised 2016 and 2017 projected growth marginally downward.
  • Credibility of BOJ policy very low.  Japanese market shut for first of three consecutive days.
  • Australian officials sufficiently worried to announce an unexpected interest rate cut and a more expansionary budget.
  • Dollar continued relentless slide against euro and yen.
  • Indiana primary today likely to all but clinch Republican nomination for Trump, who also rides high in new poll in race against Clinton.

Share prices in Europe have fallen so far today by 2.5% in Italy, 2.2% in Greece, 2.0% in Switzerland, 1.8% in Germany and 1.7% in France.  The British Ftse is flat.  Greece and Russia are closed for Greek Orthodox Easter.

Japan closed for Constitution Day.  Share prices elsewhere in the Pacific Rim fell 1.8% in Hong Kong, 1.0% in Singapore, and 0.8% in India but rebounded 2.1% in Australia.

The Reserve Bank of Australia cut its Official Cash Rate to a record low of 1.75% from 2.0% where such had been since similar-sized reductions in February and May of 2015.  Low inflation, slow growth and concern about recent Aussie dollar appreciation were cited.

The yen touched a new high of 105.54 per dollar overnight versus a 2015 low of 125.86.  The dollar is currently showing net overnight losses of 0.5% against the yen, 0.4% versus the euro, and 0.7% relative to the Swiss franc.  Alternatively, the dollar has risen 1.3% against the Australian dollar, 0.4% vis-a-vis the kiwi, 0.3% versus the loonie and 0.1% against the yuan.

Futures trading point to lower U.S. equities at the open, and the 10-year Treasury yield is seven basis points lower in futures trading at 1.81%.  The 10-year British gilt yield dropped 5 bps.

West Texas Intermediate crude oil sank 1.3% to $44.20 per barrel, while Comex gold advanced 0.3% in response to dollar weakness and is again close to $1300 at $1295.03 per ounce.

Several more purchasing managers survey results for April were announced.

  • The Caixin-compiled Chinese manufacturing PMI fell back 0.3 points to 49.4.  Such has been below the 50 no change mark for 14 straight months.
  • Britain’s manufacturing PMI fell 1.5 points to a 38-month low of 49.2 and broke below 50 for the first time since March 2013.  Such touched a 16-month high of 55.2 last October.
  • Malaysia’s manufacturing PMI dropped 1.3 points to a 5-month low of 47.1.
  • Mexico’s manufacturing PMI in April of 52.4 was at a 3-month low after 53.2 in March.
  • Brazil’s factory PMI slumped 3.4 points to 42.6, implying severe recession.
  • The Egyptian non-oil private PMI rebounded 2.5 points from a 31-month low but was still quite weak at 46.9.
  • The Saudi and U.A.E. non-oil PMI readings of 54.2 and 52.8 each constituted 3-month lows.
  • The Irish manufacturing purchasing managers index fell to a 29-month low of 52.6 in April from 54.9 in March.

The EU Commission now projects eurozone GDP growth of 1.6% this year and 1.8% in 2017 but is looking for CPI inflation to accelerate to 1.7% this year and 1.6% in 2017.

Eurozone producer prices broke a string of month-on-month declines with a 0.3% rise in March, but the 12-month rate of decline remained at 4.2%.  Producer prices on average fell 8.2% at an annualized rate between the final quarter of 2015 and the first quarter of 2016.  In the year to March, energy dived 12.1%, and all other producer prices were collectively down by 1.1%.

Swiss consumer confidence slipped to a reading of -15 in February-April from -14 in the prior three-month period but was better than -18 in August-October 2015.

Turkish consumer and producer prices respectively rose 6.57% and 2.87% in the twelve months to April.

South Korean consumer price inflation held steady at 1.0% in April.

Australian building permits sank 6.5% in March after plunging 9.0% in February.  The central bank explanation for its rate cut today noted lessening house price inflation.

Scheduled U.S. data today include the NAPM New York regional PMI, motor vehicle sales, and the IBD/TIPP optimism index.  Canada’s IVEY-PMI index is due, too.

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

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