Weak Data Intensify Investor Flight from Risky Assets

December 14, 2018

Equities fell 2.0% in Japan, 1.9% in Hong Kong, 1.5% in China, 1.3% in New Zealand and South Korea, 1.1% in Australia and Singapore, and 0.9% in Taiwan. Share prices are also down 1.0% in the U.S. and Switzerland, 0.8% in France, 0.7% in Italy, and 0.6% in Canada and Germany.

The flight to safety has depressed 10-year sovereign debt yields by five basis points in the U.K., three basis points in Japan and Germany, and two bps in the United States.

Among sinking commodity  prices, those of oil, copper and gold have fallen today so far by 2.0%, 0.7% and 0.6%.

The dollar tends to be buoyed when investors get out of riskier assets, and so today the greenback is showing gains of 0.8% against the kiwi and sterling, 0.7% versus the Australian dollar, 0.6% relative to the euro, 0.4% against the yuan, 0.3% vis-a-vis the Swiss franc, 0.2% against the loonie, and 0.1% versus the peso. But the yen has outpaced even the dollar, firming 0.1%.

Euroland’s December composite purchasing managers index fell 1.4 points to a 49-month low of 51.3 according to preliminary information, suggesting fourth-quarter growth of 0.3% but an underlying 0.1% thrust by the end of the period. The PMI readings for manufacturing and services dropped to 34-month and 49-month lows of 51.4.

Weighed down by labor unrest, the French composite PMI in December slipped under the level that divides  improvement from outright deterioration for the first time since mid-2016, touching a 30-month low of 49.3.

The German composite, manufacturing, and service-sector PMIs dropped to 48-, 33- and 7-month lows of 52.2, 51.5, and 52.5. Similar to the French and overall Ezone results, these outcomes were even weaker than analyst forecasts.

IHS Economics, which compiles European PMI surveys, also does one for the United States, and such based on preliminary information also took a big step backwards in December, dropping 1.1 points in composite terms to a 19-month low of 53.6.

The CBA purchasing managers index for Australia slid 1.5 points to a 2-month low in December of 52.4. Manufacturing was at a four-month low and below its 2018 average score.

On-year growth in Chinese retail sales slowed in November to 8.1% from 8.6% in October and 9.2% in September. Industrial production was 5.4% higher than a year earlier, down from 12-month gains of 5.9% in October and 5.8% in September. Fixed asset investment growth improved marginally.

The United States posted a record November federal budget deficit of $205 billion, up from $139 billion in November 2017. Republicans keep passing big tax cuts that they claim will pay for themselves by boosting growth, and the promised benefit never happens.

Hourly labor costs in the euro area recorded an on-year increase of 2.5% last quarter, up from 2.3% in the second quarter and 1.8% in the third quarter of 2017.

Europe’s auto sector continues to take a beating from trade strains. European Union car sales in November were 8.1% smaller than a year earlier, compared to a 7.3% drop recorded in the year to October.

Italian industrial orders fell 0.3% in October following a 3.1% monthly decrease in September. Industrial sales dropped 0.5% in the latest month.

Britain’s index of leading economic indicators posted a third straight monthly decline in October, matching September’s drop of 0.4%. The index of coincident economic indicators was flat.

German wholesale price inflation dropped a half percentage point in November, matching September’s 3.5% that had been the lowest since April.

Consumer price inflation in Italy in November got revised from 1.7% to 1.6%, marking the third month in the past four to show a 1.6% 12-month rise.

Spanish CPI inflation slowed 0.5 percentage points to a 7-month low of 1.7% in November.

Like the dollar, the yen rose against major European currencies. The yen tends to benefit in trading dominated by safety concerns but also likely benefited from decent data on a day that saw other countries report disappointing indicators.

  • The Bank of Japan quarterly Tankan survey of corporate conditions and expectations revealed a marginally higher overall diffusion index and upwardly revised projected investment growth this fiscal year of 14.3%.
  • Japanese industrial production grew 2.9% on month in October. Shipments went up 3.5%, while inventories dropped 1.3%. Capacity usage went up 4.0% on month and 3.9% on year.
  • Japan’s preliminary purchasing managers index for manufacturing increased 0.2 index points to a 3-month high of 52.4.

There’s been an unexpected 25-basis point interest rate hike at the Central Bank of Russia. The one-week repo rate, which in September was raised (also by 25 bps) for the first time since December 2014, now becomes 7.75%. Previously between January 2015 and March 2018, the rate had been slashed from 17.0% all the way to 5.25%. Today’s tightening was taken amid elevated inflation risks stemming from factors such as the recent VAT hike.

In Peru, by contrast, inflation is currently within target and expected to remain so. The Central Reserve Bank of Peru accordingly left its key interest rate unchanged at yesterday’s policy review. 2.75% has been the level¬†reached since a string of alternate odd-numbered monthly 25-basis point cuts beginning in May 2017 and ending in March 2018.

In other data news today,

Chinese unemployment edged down further to 4.8% in November, and on-year growth in house prices there matched October’s 9.7%.

New Zealand’s manufacturing purchasing managers index for November stayed at the level of October’s five-month high of 53.5.

Indian wholesale price inflation fell to a 3-month low of 4.64%. India’s trade deficit in November of $16.67 billion was a little larger than that a year earlier.

U.S. retail sales rose 0.2% last month and 4.2% from a year earlier after a 1.1% monthly advance in October.

A 0.6% rise in U.S. industrial production during November was twice as much as forecast but accompanied by no growth in factory output. Overall capacity utilization reached 78.5% in November compared to 76.5% a year earlier.

CPI inflation in both Poland and Finland last month was at a mere 1.3%.

Ireland’s year-to-October trade surplus of EUR 43.4 billion was 18% wider than a year earlier.

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


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