Financial Markets Dominated by U.S.-Iran Concerns

January 6, 2020

Commodity price rises were extended Monday. WTI oil climbed 1.1%, while Comex gold is only $25 south of the $1,600 per ounce level.

Share prices fell 1.9% in Japan and India, 1.3% in Taiwan, 1.0% in South Korea, and 0.8% in Hong Kong. In European trading, stocks are down 1.4% in Germany, 1.0% in Italy and France, 0.9% in the U.K., and 0.7% in Switzerland and Spain.

Ten-year sovereign debt yields eased a basis point in Japan, Germany and the United States.

The dollar fell 0.5% versus sterling, 0.4% relative to the euro, 0.3% against the loonie, Swiss franc and Mexican peso, and 0.1% vis-a-vis the kiwi. The yen and Aussie dollar have moved in lockstep with the U.S. dollar.

Investors fear a war and are disregarding some better-than-forecast data.

German retail sales volume rebounded at a monthly pace of 2.1% in November, twice expectations and the fastest since last January. On-year growth in sales doubled to 2.8%.

The Sentix gauge of investor confidence toward the euro area advanced 6.9 points to an 8-month high of +7.6. Such bottomed at -16.8 last October.

Euroland’s service sector and composite purchasing manager indices printed in December at 4-month highs of 52.8 and 50.9. These levels are better than their preliminary indications. For individual members of the euro area, the composite PMI readings at yearend touched an 8-month high in Spain, a 6-month high in Ireland, a 4-month high in Germany and a 3-month high in the case of France. But Italy’s 49.3 score was the lowest in 11 months.

The U.S. IHS-compiled services purchasing managers index increased 1.2 points to a 5-month high of 52.8, which promoted a 0.7-point rise of the composite U.S. PMI to an 8-month high of 52.7. The more widely followed Institute of Supply Management’s non-manufacturing PMI survey will be reported tomorrow.

India’s service sector and composite PMI readings in December of 53.3 and 53.7 signal the strongest growth there since July.

Despite continuing street unrest in Hong Kong, its private sector purchasing managers index last month was at a 5-month high, albeit still quite depressed at 42.1.

Britain‘s services PMI rose back to the neutral level of 50, a 2-month high, but the composite PMI there stayed at 49.3, which matches the lowest since July 2016. Britain’s December PMI readings were each revised higher than preliminary indications, services to a 2-month high from a flash reading of 49.0 and the composite back to November’s 8-month low of 49.3 after an initial December estimate of 48.5.

China’s services and composite PMI readings stayed above 50, but slid from November’s respective 7- and 21-month highs to 2-month lows.

Singapore’s private PMI showed continued improvement, rising by 0.6 points to a 5-month high of 51.0.

Brazilian PMI results were mixed: a 3-month high of 51.0 on the services index was not enough to prevent a 6-month low of 50.9 in the composite index.

In the fragile Middle East, the non-oil PMI edged 0.1 point lower to 50.2, a 10-year low, and the Saudi Arabian reading of 56.9 was at a 56.9 low. But Egypt’s non-oil PMI recovered 0.3 points to a 2-month high of 48.2.

Commonwealth Bank of Australia‘s services PMI nudged 0.1 point higher but stayed under 50 at 49.8 in December and contributed to a 4-month low composite PMI score of 49.6. However, AIG’s manufacturing PMI for Australia rebounded 0.2 points above November’s 39-month low of 48.1.

South Africa’s PMI compiled by Standard Bank dropped to a 14-month low of 47.6.

British new motor vehicle registrations ended 2019 2.4% below their December 2018 level.

There were several producer price data releases today, most notably for the euro area where the PPI rose 0.2% on month in November but fell 1.4% on year. Energy jumped 0.9% for a second straight month, shrinking the 12-month decline to 6.1%, while non-energy producer prices were unchanged on month and 0.3% higher on year.

In Hungary, producer prices rose 0.4% in November and accelerated on a year-on-year basis to a 6-month high of 2.1%. Likewise, Romania’s PPI increased 0.3% on month and by a 4-month high 3.4% on year.

In Canada, however, the PPI edged up just 0.1% and recorded a 12-month decline of 0.4%.

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

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