Equities around the World Hammered by Weak Data, Low Confidence, and Pompeo’s China Accusation

May 4, 2020

Share prices in Asia closed down 5.9% in India, 4.2% in Hong Kong, 2.7% in South Korea, 2.5% in Taiwan, 2.4% in Indonesia, and 2.3%  in Singapore. European markets have so far lost 3.9% in France, 3.0% in Italy, 3.5% in Germany, and 2.6% in Spain. U.S. equity futures are struggling, too. Japan is closed for Greenery Day in a continuation of Golden Week.

Manufacturing purchasing manager surveys released today reflect widespread and oftentimes unprecedented weakness during April.

  • Euroland’s PMI printed at 33.4, a data series low (which goes back to at least 1997). Output contracted at the fastest pace ever in all individually reporting countries. Overall PMI readings were at record lows in Greece, France, Italy, and Austria and at their lowest point since late 2008 or early 2009 of the Great Recession in Germany, the Netherlands, Ireland, and Spain.
  • Also from Europe, the Swiss PMI dropped to a 131-month low, and the Czech PMI sank 6.2 index points to a133-month low. Poland‘s reading was the lowest ever going back at least to 1998, and Sweden’s index hit a 134-month low. The Norwegian and Hungarian PMIs, however, rebounded marginally to 2-month highs.
  • Today’s most dramatic PMI report belonged to South Africa where a collapse of the ABSA-compiled survey to 5.1 in April from 48.1 in March points to a virtual standstill in that economy’s factory sector.
  • PMI readings in India of 27.4, Indonesia of 27.5, Malaysia of 31.3, the Philippines of 31.6, and Vietnam of 32.7 all represented record lows in April.  The Taiwanese PMI fell to a 135-month low, and Turkey also experienced its fastest manufacturing contraction since the Great Recession.

Real GDP in Hong Kong contracted for a fourth straight quarter, this time by a huge 5.3% on quarter. That depressed year-on-year growth in the former British colony to 8.9%, most since at least 1974. In the previous four quarters through the first quarter of 2019, GDP had risen just 0.7%, down from growth of 4.6% in the year through the first quarter of 2018.

The Sentix measure of investor confidence in Euroland’s economic prospects rebounded much less than expected or hoped, printing at a woeful -41.8 in April versus -42.9 in March and +46.7 in February. The April reading embodies an off-the-charts low of -73.0 in perceived current conditions.

Business sentiment in Mexico deteriorated by a further 6.1 index points to a 133-month low in April of 37.4.

Austria’s jobless rate increased to a record 12.8% in April from 7.3% a year earlier. Unemployment in the Czech Republic was 0.4 percentage points higher in April than March.

Australian building permits fell 4.0% in March.

Adding to the market tension, Secretary of State Pompeo claimed over the weekend to be in possession of enormous evidence that Covid-19 originated in a secret Chinese factory. Such accusations hurt market confidence three ways, first by underscoring the U.S. political leaders are more interesting in deflecting blame from their own inept handling of the pandemic, second by showing that more energy is currently going into investigating the cause of the outbreak than in managing current conditions so the U.S. economy can be safely restarted, and thirdly by lifting the probability of a deepening trade war between the world’s two biggest economies right when all countries need a cooperative macroeconomic policy approach more than ever.

Consistent with the new wave of investor risk aversion, the prices of WTI oil and gold respectively fell 3.0% and rose 0.9% overnight. The 10-year German bund yield increased by three basis points, and the dollar climbed 0.4% against the euro and sterling, 0.3% against the Swiss franc, 0.2% relative to the kiwi and 0.1% versus the Australian dollar.

Price data released today in Turkey revealed 5-month lows in April of CPI inflation (10.9%) and PPI inflation (6.7%). Indonesian CPI inflation decelerated slightly to 2.67% (2.85% core). And consumer prices in South Korea dropped 0.6% on month and posted their smallest year-on-year rise (0.1%) in half a year.

Still ahead: the New York NAPM regional PMI and U.S. factory orders.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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