China-Sensitive Stocks Falter while Yen and Gold Climb

January 3, 2019

As U.S. stocks tumbled last month, optimists proclaimed that the drop presented a buying opportunity and would prove short-lived because U.S. economic data trends remained solid. Now investors are getting validation that they were right to worry that America’s ill-advised tariff policy imposed on a world economy that already was slowing would generate more damage than benefit to U.S. growth.

  • Apple disclosed weaker-than-forecast Iphone sales last quarter mainly because of weakening Chinese demand. Such sent the company’s share price down over 8% in after-hours trading. U.S. futures point to a very big drop at today’s open in the major equity indices.
  • The global manufacturing purchasing managers index slumped a half-point to a 27-month low in December, led by lower demand, employment, inflation, and general business outlook.

The dollar often benefits when investors run to safety, but this time the yen and gold are the major beneficiaries. The U.S. 30-year Treasury yield closed yesterday below 3.00% for the first time since July 19th. The dollar overnight lost 1.3% against the yen to JPY 107.65 and 0.5% versus Comex gold to $1,290.50.

Relative to other currencies, the dollar dipped 0.2% vis-a-vis the Swiss franc and 0.1% versus the euro but climbed 0.5% against the Aussie dollar, 0.4% against the kiwi and sterling, and 0.2% versus the yuan. There was little change against the loonie or peso.

Ten-year sovereign debt yields rose overnight by 14 basis points in Italy, 6 bps in Portugal, 4 bps in Switzerland, 3 bps in the U.K., 2 bps in the United States, and a basis point in Germany. Japan’s market remained closed.

Oil edged up 0.2%, but industrial metal prices slipped.

Stock markets in the Pacific Rim fel 1.1% in India, 1.0% in South Korea, 0.9% in Singapore, 0.7% in New Zealand and Taiwan, and 0.4% in Hong Kong. Markets in Europe are down so far today by 1.2% in France and Germany, 0.6% in Italy, and 0.4% in Great Britain.

The British construction-sector purchasing managers index fell 0.6 index points to a 3-month low in December of 52.8.

But Switzerland’s manufacturing PMI edged 0.1 point higher to a 3-month high of 57.8.

In spite of falling long-term interest rates, U.S. mortgage applications tumbled 8.5% in the final week of December following a 5.8% slide in the week before Christmas.

Spanish consumer confidence fell a half-point to a 3-month low of 90.9 in December. Such hit a 2018 high just six months earlier at 107.0.

The 12-month rate of rise in Hong Kong retail sales of only 1.4% in November was the smallest on-year growth since mid-2017.

Euroland M3 money growth slowed in November to 3.7% from a year earlier. On-year growth in bank credit to the private sector slipped below 3.0% to 2.8%. The ECB is liable to become even more cautious about normalizing policy given Europe’s slowing rate of growth, easing inflation, and lackluster monetary data trends.

Turkish CPI inflation slowed to a 4-month low of 20.3% at the end of 2018, and PPI inflation slid to 33.64% in December from 38.54% in November.

ADP’s estimate of private sector jobs growth last month was 271K, which tops analyst forecasts by nearly 100K workers and constitutes the largest monthly advance in their data since February 2017. U.S. data still to be released today include weekly jobless insurance claims and monthly motor vehicle sales, new home sales and New York City PMI.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


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