More Evidence of Weakening Growth in Europe and Trepidation Ahead of President Trump’s State of the Union Address Tonight

February 5, 2019

The conclusion of Euroland’s service-sector and composite purchasing manager surveys tells it all:

The business environment is at its most challenging since the height of the region’s debt crisis.”

The composite Ezone PMI reading of 51.0 was at a 66-month low, and service sector activity (51.2) was near its 4-year low. From a separate report on the euro area economy, investors learned that retail sales in December slumped 1.6% and was merely 0.8% stronger than a year earlier. Sales volume last quarter edged just 0.1% higher. What began as slowdown in foreign demand for manufactured goods has now spread to the rest of Euroland’s economy.

President Trump’s delayed State of the Union address tonight figures to be very contentious. No progress is being made on resolving the dispute over his demands for a border wall, which creates the possibility that he’ll declare a national emergency. The shutdown, meanwhile, has made the discernment  of U.S. economic trends more difficult. Not only was the planned release of the U.S. trade figures delayed today, but so  were Canada’s, which rely heavily on U.S. figures for estimation.

The U.S. ISM-compiled non-manufacturing purchasing managers index fell 1.3 index points in January to a 6-month low of 56.7.

The dollar traded 0.7% higher against sterling overnight. Great Britain’s services and composite purchasing managers indices each dropped to 30-month lows of 50.1 and 50.3, respectively. Service sector activity was its second weakest since the end of 2012, with no solution yet emerging on the Brexit impasse. The ten-year British gilt yield fell four basis points, but the FTSE share price index advanced by 1.8%. Between January 2018 and last month, British same store sales rose 1.8%, but new car sales fell 1.6%.

The dollar is unchanged overnight against the yen and has firmed by 0.2% versus the euro and  0.3% relative to the Swiss franc.

WTI crude oil slipped 0.4%.

The Reserve Bank of Australia’s first monetary policy review of 2019 left the 1.5% Official Cash Rate unchanged. It’s been at that record low since a 25-basis  point cut way back in August 2016. A released statement projected inflation rising toward target, averaging 2.0% this year and a bit more in 2020.

Released Australian economic data today revealed a 0.4% on-month decline of retail sales in December and a 0.3% on-quarter rise in inflation-adjusted terms during 4Q18. Separately, Australia’s trade surplus widened to a 2-year high in December of A$ 3.681 billion, and the full-2018 surplus of A$22.15 billion was more than twice the size of the 2017 surplus of A$ 9.87 billion. Australia’s terms of trade has increased but is expected to decline in the future.

Non-oil purchasing manager indices fell in Egypt to a 13-month low of 48.5 but rose in Saudi Arabia and the U.A.E. to a 13-month high of 56.2 and a 7-month high of 56.3, respectively. Lebanese activity continues to contract as attested by its private PMI reading of 46.5 in January. Input price inflation there contracted for the first time in a half year.

Japan’s composite purchasing managers index fell 1.1 points to a 4-month low of 50.9 in January despite a rebound of the service sector PMI to a 2-month high.

India’s service sector PMI fell to a 3-month low of 52.2, and its composite PMI of both manufacturing and services remained the same as December’s 2-month low f 53.6.

Russia’s composite PMI dropped to a 4-month low of 53.6 in spite of a 0.5-point uptick in the services PMI to 54.9.

Brazil’s composite PMI slid to a 2-month low of 52.3 due to weak manufacturing even as the services PMI edged up 0.1 point to an 11-month high.

Stock markets in the U.K., Germany, and France have each risen more than 1.0% so far today. The U.S. stock market strengthened, too. Japan’s Nikkei dipped 0.2%, and many other markets in Asia remain shut for the Lunar New Year holiday.

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

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