China Leads Overnight Selloff in Stocks

March 8, 2019

Downward pressure on global equities caused by evidence of a slowdown had been building this week but intensified overnight. Share prices in the Pacific Rim plunged 4.4% in China, 2.8% in Hong Kong, 2.0% in Japan, 1.3% in South Korea, 1.2% in Indonesia and Australia, and 1.0% in Singapore. In Europe so far, stocks are down by 1.5% in Greece, 1.0% in the U.K. and Spain, 0.8% in Germany, and 0.5% in France.

Consistent with investor risk aversion, 10-year sovereign debt yields fell 3 basis points in Japan and 1 basis point in the United States, while the price of gold advanced 0.6% to $1,293 per ounce. WTI oil is down 1.7% at $55.70 per barrel.

The dollar declined overnight by 0.4% against the yen and kiwi and 0.2% relative to the euro, Australian dollar, and Swiss franc. The dollar is also 0.1% firmer against the loonie, yuan, and peso.

Investors await the release of U.S. and Canadian February monthly labor market statistics in less than an hour, but in the meantime are reacting to several weak reports from abroad.

Distorted by the Lunar New Year holiday, China’s trade surplus imploded to an 11-month low of $4.12 billion in February from $39.6 billion in January and $57.1 billion in December. Exports plunged at the fastest speed in three years, 20.7% versus a year earlier, and imports (down 5.2%) dropped for a third straight month.

German factory orders decreased 2.6% in January, the largest monthly slide in a half year, leaving such 3.9% lower than a year earlier. Weakness was concentrated in capital goods. Both domestic demand and export orders fell.

Japan released several indicators. First, real GDP growth last quarter got revised slightly upward to 1.9% at a seasonally adjusted annualized rate, but on-year growth was only 0.3%, down from 2.4% in the four quarters through 4Q17. Likewise calendar year growth was sliced to 0.8% in 2018 from 1.9% in 2017. Also, the GDP price deflator contracted slightly on both a monthly and year-on-year basis. Second, the current account surplus in January widened to JPY 600 billion from JPY 592 billion a year earlier, but exports contracted 6.7% on year and 5.3% on month when seasonally adjusted. Third, average cash earnings in January recorded the smallest on-year rise (1.2%) since September and, fourth, bankruptcies in February were 4.5% fewer than a year earlier, which only offset a 4.9% rise in January. Fifth, real household spending in January rose 0.7% on month and 2.0% on year, most in five months. Sixth, bank lending remained depressed in February with on-year growth of 2.3% versus 2.2% in the second half of 2018. Finally, although Japan’s economy watchers index rose to a 3-month high in February, that diffusion index of 47.5 remained some distance below the 50 no change level, and moreover the forward-looking economy watchers outlook index dropped back to a 2-month low of 48.4.

French industrial production rose 1.3% in January, most in 11 months, but was just 1.7% greater than a year earlier. Italian industrial production climbed 1.7% on month but posted a third straight year-on-year drop, this time of 0.8%. And Spanish industrial output recovered 3.4% in January following two straight monthly declines totaling 3.0%.

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

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