Swoon of Stocks Continues Amid More Released Data and Ahead of Round 2 of the Powell Testimony

March 1, 2018

The newly minted Fed Chairman Jerome Powell will reprise his congressional Humphrey-Hawkins testimony at 10:00 EST, this time before the Senate Banking Committee. In the past two sessions since he testified before the House Financial Services Committee, the S&P and DOW dropped by 2.2% and 2.6%.

Stocks overnight slumped 1.6% in Japan, 0.7% in Australia, 0.5% in New Zealand and 0.4% in India. In Europe so far, equities are down 1.6% in Germany, 1.0% in France and Spain, 0.9% in Switzerland and Italy, and 0.8% in Great Britain. The U.S. may have declined the role of leader of the free world but still stirs the drink for global financial markets.

The dollar continues to rebound as stocks head south. It has appreciated overnight by 0.5% relative to the Aussie dollar, 0.3% versus the yuan, loonie and peso, and 0.2% against the euro and Swiss franc. But the dollar is unchanged against the resilient yen and 0.1% softer relative to sterling and the kiwi.

Commodities weakened further, with both Comex gold and West Texas Intermediate crude oil losing an additional 0.9% overnight.

Being the first business day of a new month, a slew of manufacturing purchasing manager indices have been reported. Euroland’s PMI reading of 58.6 for the month of February was revised above its initial estimate but still 1.0 below January’s score and the lowest since September. 58.6 still implies very robust economic activity, but there are signs that such may not be sustained. Export demand was at an 11-month low, suggesting a drag from the elevated euro. Input price inflation subsided, but the sub-index for output prices climbed to an 82-month high.

Within the euro area, PMI readings ranged from a record high 63.4 in The Netherlands to a 6-month low of 55.9 in France. The Greek PMI (56.1) was at a 212-month high, and Spain’s PMI of 56.0 surpassed expectations and rose to a 3-month high. But the German and Irish PMI’s were at 4-month lows. The Italian PMI slipped to a 5-month low, and the Austrian PMI dropped to a 9-month low.

The British manufacturing purchasing managers index edged 0.1 point lower to an 8-month low of 55.2.

But China’s manufacturing PMI compiled by Caixin edged up 0.1 point to a 6-month high of 51.6.

Japan’s PMI slipped 0.7 points to 54.1, a two-month low.

Two Australian PMI manufacturing surveys were released. The index compiled by AIG of 57.5 was down from 58.7 in January but above December’s reading of 56.2. But the CBA purchasing managers index increased by 0.2 points to a 2-month high of 55.6.

Back in Europe, the Swiss manufacturing PMI slid to a 2-month low of 65.5, but Sweden’s index rose 2.9 points to a 2-month high of 59.9. Norway’s PMI of 57.5 was at a 2-month low. From Eastern Europe, the Russian PMI among manufacturers sank to a 19-month low of 50.2, a score that depicts hardly any pulse and an 11-month low in output prices. The Polish PMI of 53.7 was 0.9 points lower than in January and at a 4-month low. Hungary’s PMI fell to a 6-month low of 57.4 from 61.1 the month before. The Czech PMI score, 58.8, was the lowest since November but the third best reading since April 2011.

Turkey’s 55.6 PMI reading in February was 0.1 softer than January’s score but above December’s 54.9 reading.

Brazil had a PMI reading of 53.2, up 2.1 points and highest in 3 months.

The ABSA purchasing managers index for South Africa moved above 50 for the first time since May 2017 with a reading of 50.8.

In Asia, the South Korean PMI was not released because that economy is celebrating Independence Movement Day. Indonesia’s manufacturing PMI rose to a 20-month high of 51.4. Malaysia’s fell below the 50 line that separates expansion from contraction but only to 49.9. The Filipino PMI reading of 50.8 was 0.9 points lower and at a 5-month low. Taiwan’s 56.0 PMI reading was at a 4-month low, while Vietnam’s 53.5 result was the highest in ten months.

Japanese consumer confidence fell 0.4 points to a 5-month low of 44.3 in February. In February 2016, consumer sentiment had a reading of 43.2. All these results remain some distance below the 50 line of neutrality.

Japanese business investment rose 4.3% last quarter, which is more than had been assumed and, other things being equal, suggesting that fourth-quarter GDP growth may be revised upward.

Japanese motor vehicle sales in February were 4.9% lower than a year earlier. Such had fallen 5.7% on year in January but just 1.0% in December.

Private-sector business investment in Australia slid 0.2% last quarter, as weaker construction outweighed a rise in spending on machinery and equipment.

New Zealand’s terms of trade (export/import price ratio) climbed 0.8% in the fourth quarter, which was more than forecast.

Indonesian total and core CPI inflation slowed in February to 3.2% and 2.6%.

The Euroland unemployment rate remained unchanged at 8.6% in January. That’s still down from 9.6% a year earlier. Italian unemployment moved 0.2 percentage points higher to 11.1%, however.

Swiss real GDP grew 0.6% last quarter, led by construction and consumer spending. On-year growth accelerated to 1.9% in 4Q, well above the full-2017 average of 1.0%. But the volume of Swiss retail sales recorded a greater-than-forecast on-year drop of 1.4% in January.

Spanish GDP increased 0.7% last quarter, same as the 3Q pace. On-year growth was 3.1% both for the latest quarter and for 2017 as a whole.

Italian on-year GDP growth, according to revised data, was 1.5% last quarter and 1.5% as well in full-2017. The calendar year increase was the most in 7 years.

Brazilian GDP was disappointing last quarter, with just a 0.1% uptick from 3Q, the same quarterly pace as in 3Q. Full-2017 GDP growth of 1.0% was the most, however, since 2013.

Ukraine’s central bank policy interest rate was raised another full percentage point to 17.0%. This was the fourth increase since late October, bringing the cumulative advance to 450 basis points. The rate previously had been lowered from a high of 30% in August 2015 to 12.5% by May 2017. Officials have reversed the policy bias because of a rise of inflation, now at 14.1%, and because inflation risks still persist. A released statement leaves the door open to more restraint, if inflation risks remain elevated.

Canada’s current account deficit narrowed last quarter to C$ 16.346 billion from C$ 18.589 billion in the third quarter. The full-2017 deficit of C$ 63.9 billion was marginally less than C$ 65.4 billion in 2016.

U.S. personal income posted a monthly rise in January of 0.4%, the third such increase out of the past four months. But real personal consumption expenditures dipped 0.1% as forecast following increases of 0.2% in October and December flanking Novembers 0.5% increase.

The U.S. PCE price deflator went up 0.4% on month in January, leaving the 12-month rate of increase at 1.7% for a third straight month. The core PCE inflation rate remained at 1.5%, same as the result in the three prior months.

U.S. new jobless insurance claims fell 10K to 210K last week. The last time the weekly level of claims was this low was way back in the first week of December 1969, coinciding with the infamous and statistically biased draft lottery drawing of the Vietnam War.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


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