Mounting Evidence of Slower Growth in Europe and Japan

March 1, 2019

Stock markets rallied in Asia on hopes for a U.S.-Chinese trade deal soon. Share prices climbed Friday by 1.8% in China, 1.3% in Hong Kong, 1.0% in Japan, 0.9% in Indonesia and 0.6% in India. The black sheep was South Korean equities, which dropped 1.8% further following the collapsed U.S./North Korean denuclearization talks.

Equities in Europe are so far up 1.2% in Germany, 0.7% in France and Spain, and 0.6% in Great Britain.

The dollar is narrowly mixed, with losses of 0.3% against the Australian dollar, 0.2% versus the loonie and 0.1% vis-a-vis the euro but gains of 0.3% against the yen, 0.2% relative to the yuan, and 0.1% against the kiwi and sterling. The Swiss franc and Mexican peso are unchanged against the dollar.

Ten-year U.S., German and Japanese sovereign debt yields firmed a basis point.

WTI oil traded 0.4% higher, while the price of gold slipped 0.5%.

Being the first business day of March, a slew of manufacturing purchasing manager surveys got reported, and it’s not a pretty picture. Operating conditions in manufacturing continue to deteriorate and in several places have become recessionary as attested by sub-50 readings.

Euroland’s manufacturing PMI printed below the 50 no change level in February for a second straight month, dropping to a 68-month low of 49.3. Three of the currency union’s four largest members reported sub-50 PMIs: Germany (a 74-month low of 47.6), Italy (a 69-month low of 47.7), and Spain (a 63-month low of 49.9). The French PMI was only 51.5, and the Dutch and Austrian PMI scores were the lowest in 32 and 37 months.

Among other European economies, manufacturing PMI indices dropped to a 5-month low in Russia of 50.1, a 4-month low in the U.K. of 52.0, a 73-month low of 48.6 in the Czech Republic, and a joint 70-month low in Poland of 47.6. The Swiss PMI ticked up to a 2-month high of 55.4, and Sweden’s 52.5 reading in February was the best since November. Denmark’s 61.6 was a 4-month high, but Norway’s 56.3 reading was a 2-month low.

In Asia, Japan‘s manufacturing purchasing managers index fell 1.4 points to a 32-month low of 48.9, and this news was accompanied by separate data releases from Japan showing a 27-month low last month in consumer confidence, a fourth quarter drop in corporate profits of 7.0%, a mere 0.6% on-year rise of consumer prices in Tokyo in February, and a 0.1 percentage point rise of unemployment along with slower on-year jobs growth in January.

Staying with Asia, China’s manufacturing PMI printed below 50 for a third straight month but, at 49.9, at least above the December and January readings. The Vietnamese, Filipino, Thai and Malaysian PMI readings were at 35-, 6-, 3- and 2-month lows of 51.2, 51.9, 49.9, and 47.6. Turkey’s PMI, although at a 6-month high, remained will south of 50 at 46.4. India (54.3) and Indonesia (50.1) had higher readings than the month before.

The AIG-compiled and CBA-compiled Australian manufacturing purchasing manager readings for February were at 4- and 7-month lows of 54.0 and 52.9. ABSA-compiled PMI for South Africa fell back to a 4-month low of 46.4.

Harmonized consumer price inflation in the euro area edged back up 0.1 percentage point to 1.5% in February according to the preliminary estimate, which is still well down from 2.3% in October. Moreover, core CPI inflation eased 0.1 percentage point to 1.0%, well below target. The unemployment rate in the euro area stayed unchanged at 7.8%.

German joblessness remained at 5.0% for a fourth straight month in February, and there were 21K fewer unemployed workers. On-year employment growth of 1.1% was the same in January as in the final quarter of 2018. German retail sales bounced back from December’s 3.1% plunge with a 3.3% advance in January, the biggest on-month increase in 27 months.

But Swiss retail sales stayed depressed, dropping 0.3% on month and 0.4% compared with the level in January 2018.

Italian GDP expanded only 0.9% last year, the least in 3 years, and recorded a mere 0.1% year-on-year rise in the final quarter of 2018.

GDP growth between the final quarters of 2017 and 2018 amounted to 5.1% in Hungary, 2.8% in the Czech Republic, and 2.4% in Austria. Austrian producer prices rose just 0.1% in January, and the 12-month increase slid to 1.6%.

Indonesian CPI inflation continued to trend lower in February, dropping a quarter of a percentage point to 2.57%. South Korea’s $4.39 billion trade surplus in January-February was 30% narrower than a year earlier.

New Zealand had mixed data reports: a 16.5% monthly leap in building permits in January but a 3.0% decline in its export/import price ratio last quarter.

U.S. data reports today will include personal income and spending, the U. Michigan consumer sentiment index, and motor vehicle sales.

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

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