Global stocks steadied Friday as calmer conditions prevailed in the markets after Thursday's big slide. However, it was too late to recover the week's losses and most equity indexes were lower for the week. U.S. equities reacted to the ever higher dollar by sinking Thursday. The reason is one that most often is given to gyrations in the Japanese Nikkei — a higher currency impacts export competitiveness and profits.
It seems likelier that monetary policies will continue to diverge. While the Bank of England and the Federal Reserve are preparing to normalize policies, the European Central Bank belatedly is moving in the opposite direction. ECB President Mario Draghi said that while the euro area economic would grow modestly in the second half of the year, the recovery seems to have lost momentum recently. For the Bank of England, Governor Mark Carney said that many of the conditions for the economy to normalize have been met. The point of beginning to normalize interest rates is getting closer. The Bank of Japan meanwhile continues to fight its long standing deflation with no sign of policy normalization there.
|
|
2013 |
2014 |
% Change |
|
Index |
31-Dec |
Sep 19 |
Sep 26 |
Week |
2014 |
Asia/Pacific |
|
|
|
|
|
|
Australia |
All Ordinaries |
5353.1 |
5437.3 |
5316.6 |
-2.2% |
-0.7% |
Japan |
Nikkei 225 |
16291.3 |
16321.2 |
16229.9 |
-0.6% |
-0.4% |
Hong Kong |
Hang Seng |
23306.4 |
24306.2 |
23678.4 |
-2.6% |
1.6% |
S. Korea |
Kospi |
2011.3 |
2053.8 |
2031.6 |
-1.1% |
1.0% |
Singapore |
STI |
3167.4 |
3305.1 |
3292.2 |
-0.4% |
3.9% |
China |
Shanghai Composite |
2116.0 |
2329.5 |
2347.7 |
0.8% |
11.0% |
|
|
|
|
|
|
|
India |
Sensex 30 |
21170.7 |
27090.4 |
26626.3 |
-1.7% |
25.8% |
Indonesia |
Jakarta Composite |
4274.2 |
5227.6 |
5132.6 |
-1.8% |
20.1% |
Malaysia |
KLCI |
1867.0 |
1849.5 |
1840.5 |
-0.5% |
-1.4% |
Philippines |
PSEi |
5889.8 |
7287.3 |
7261.30 |
-0.4% |
23.3% |
Taiwan |
Taiex |
8611.5 |
9240.5 |
8989.8 |
-2.7% |
4.4% |
Thailand |
SET |
1298.7 |
1584.9 |
1600.2 |
1.0% |
23.2% |
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
UK |
FTSE 100 |
6749.1 |
6837.9 |
6649.4 |
-2.8% |
-1.5% |
France |
CAC |
4296.0 |
4461.2 |
4394.8 |
-1.5% |
2.3% |
Germany |
XETRA DAX |
9552.2 |
9799.3 |
9490.6 |
-3.2% |
-0.6% |
Italy |
FTSE MIB |
18967.7 |
20972.4 |
20795.4 |
-0.8% |
9.6% |
Spain |
IBEX 35 |
9916.7 |
11001.9 |
10851.4 |
-1.4% |
9.4% |
Sweden |
OMX Stockholm 30 |
1333.0 |
1421.5 |
1396.2 |
-1.8% |
4.7% |
Switzerland |
SMI |
8203.0 |
8840.2 |
8774.4 |
-0.7% |
7.0% |
|
|
|
|
|
|
|
North America |
|
|
|
|
|
|
United States |
Dow |
16576.7 |
17279.7 |
17113.2 |
-1.0% |
3.2% |
|
NASDAQ |
4176.6 |
4579.8 |
4512.2 |
-1.5% |
8.0% |
|
S&P 500 |
1848.4 |
2010.4 |
1982.9 |
-1.4% |
7.3% |
Canada |
S&P/TSX Comp. |
13621.6 |
15265.4 |
15026.8 |
-1.6% |
10.3% |
Mexico |
Bolsa |
42727.1 |
45761.9 |
44884.3 |
-1.9% |
5.0% |
Equities tumbled across the board last week as data offered little hope that the European economy is improving. ECB president Mario Draghi's assurances that the Bank would do everything it can to lift the moribund economy had little impact. In contrast, Bank of England Governor Mark Carney said the BoE may be getting closer to raising interest rates. On the week, the FTSE tumbled 2.8 percent, the CAC lost 1.5 percent, the DAX dropped 3.2 percent and the SMI slid 0.7 percent.
The FTSE declined as concerns that Britain and the United States will soon tighten monetary pulled down mining and energy stocks along with companies exposed to the British property market. BoE governor Carney's comments did not help. Analysts noted that markets are torn between two different drivers — accommodation by the ECB and the withdrawal of stimulus from the BoE and Federal Reserve.
There was little new economic data and what there was disappointed. The September flash composite PMI which includes both services and manufacturing slipped to 52.3 from 52.8 in August. The deceleration reflected softer expansion rates in manufacturing (PMI 50.5 after August's final 50.7) and services (52.8 after 53.1). Most worrying is the performance of new orders which saw their smallest increase in services in half a year and the first outright decline in manufacturing since June 2013. Employment growth was positive but only minimal and concentrated in services where business expectations hit their weakest mark since the middle of 2013. Regionally, the core economies continued to go their own separate ways with the composite output index in Germany 0.3 points higher at a reasonably robust 54.0 but its French counterpart 0.4 points weaker and once again, on the wrong side of 50 at 49.1. The graph adds China, Japan and U.S. readings for comparison.
Equities were down for the most part last week thanks to mixed U.S. economic data and renewed geopolitical issues with Russia. Russia's fresh retaliatory measures to Western sanctions over Moscow's role in Ukraine would empower the Russian government to seize foreign assets on Russian territory. The U.S. and its allies have targeted individuals, companies and the finance, energy and defense industries to punish Russian aggression against Ukraine.
The Nikkei retreated 0.6 percent on the week. The index once again traded inversely to the value of the yen — when the currency rose in value, equities declined especially those of exporters. They rallied when the yen declined. The slower than anticipated increase in August's consumer price index underlined the risks facing Bank of Japan Governor Haruhiko Kuroda in his bid to achieve the 2 percent price target. The core CPI excluding fresh food but including the sales tax increase was up 3.1 percent on the year, down from 3.3 percent in July. Excluding the sales tax, the core CPI was up 1.1 percent on the year, the lowest since October 2013.
The Sensex retreated 1.7 percent on the week amid concerns that a Supreme Court decision to cancel coal mining permits would weigh on the economic recovery. However, it rallied 0.6 percent Friday after Standard & Poor's raised the country's credit rating outlook to stable from negative. The rupee and bonds advanced. S&P maintained its BBB-minus rating — the lowest investment grade rating — and said it could raise the rating if economic growth quickens and fiscal, external or inflation metrics improve. The move removes the risk of a downgrade to junk status for Prime Minister Narendra Modi, who won the nation's biggest election victory in three decades in May by pledging to revive the economic expansion.
Mainland China's Shanghai Composite bucked the trend as investors there looked to a possible replacement of the People's Bank of China's chairman as a signal the country is steering toward a more accommodating monetary policy stance. The Shanghai Composite was up 0.8 percent on the week. However, the Hang Seng dropped 2.6 percent.
Speculation about the retirement of China central bank Governor Zhou Xiaochuan, a champion of shifting the Chinese economy to greater reliance on markets, is resurfacing. Zhou is 66, past the typical retirement age for senior officials, and a Communist Party leadership meeting is looming next month, escalating social media chatter on his possible exit. The PBoC, along with the rest of the nation's policy making community, is grappling with a slowdown in growth and efforts to follow through on a pledge to give markets a "decisive" role in the economy. Zhou has advocated freeing up controls on interest rates and reducing intervention in the exchange rate.
The U.S. dollar was up against all of its major counterparts including the euro, yen, pound sterling, Swiss franc and the Canadian and Australian dollars. The euro slipped below the $1.27 mark in mid-morning trading in New York Friday, bringing its decline to over 9 percent since it almost touched $1.40 in early May. An improving U.S. economy and expectations that the Federal Reserve will raise interest rates ignited a four month rally in the dollar. And with the European Central Bank expected to add more stimulus to the Eurozone economy, the euro has been one of the easiest targets as the yield on U.S. government bonds widened their advantage over German bunds.
The dollar hit a four year high as the yield difference between U.S. and German bonds widened to the highest in nearly 15 years Thursday while global equity markets declined sharply as the stronger dollar pointed to potential earnings losses. Weak European economic data also helped push the euro lower, while the strong dollar sent oil and other commodity prices that are denominated in U.S. dollars lower.
Analysts and traders pointed to Tuesday's anemic Eurozone business activity data, coupled with further dovish comments from European Central Bank President Mario Draghi, as short term catalysts for the dollar's move higher against the euro. On Wednesday, Mr Draghi repeated that the ECB is open to using further unconventional policy measures to head off the threat of perilously low inflation which is now just 0.3 percent on the year.
Reserve Bank of New Zealand Governor Graeme Wheeler continued to jawbone the New Zealand dollar lower. He signaled he is prepared to sell the nation's dollar or kiwi to weaken it, saying the current level is unjustified and unsustainable. The currency, in response, tumbled. Further he said that the bank would welcome a move towards a more sustainable exchange rate level. Mr Wheeler, in an unscheduled statement, said that "unjustified and unsustainable are important considerations in assessing whether exchange rate intervention is feasible." Analysts said that his 'code words' — unjustifiable and unsustainable — would imply all hurdles for intervention have essentially been vaulted.
The kiwi has fallen almost 9 percent since July, reflecting the halt in the RBNZ's rate tightening and a weaker economic outlook. Still, the currency's relative strength has suppressed import prices and kept headline inflation below the 2 percent midpoint of the RBNZ's target range, masking domestic price pressures. On July 24, Wheeler said the bank would pause after four interest rate increases this year as the kiwi's strength continued to damp inflation. He said that after a period of monitoring and assessment, "it is expected that some further policy tightening will be needed" to keep inflation contained.
|
|
2013 |
2014 |
% Change |
|
|
Dec 31 |
Sep 19 |
Sep 26 |
Week |
2014 |
U.S. $ per currency |
|
|
|
|
|
|
Australia |
A$ |
0.893 |
0.893 |
0.877 |
-1.8% |
-1.8% |
New Zealand |
NZ$ |
0.823 |
0.813 |
0.787 |
-3.2% |
-4.4% |
Canada |
C$ |
0.942 |
0.914 |
0.896 |
-1.9% |
-4.8% |
Eurozone |
euro (€) |
1.376 |
1.284 |
1.268 |
-1.2% |
-7.8% |
UK |
pound sterling (£) |
1.656 |
1.630 |
1.624 |
-0.3% |
-1.9% |
|
|
|
|
|
|
|
Currency per U.S. $ |
|
|
|
|
|
|
China |
yuan |
6.054 |
6.141 |
6.127 |
0.2% |
-1.2% |
Hong Kong |
HK$* |
7.754 |
7.751 |
7.758 |
-0.1% |
0.0% |
India |
rupee |
61.800 |
60.828 |
61.158 |
-0.5% |
1.1% |
Japan |
yen |
105.310 |
108.940 |
109.280 |
-0.3% |
-3.6% |
Malaysia |
ringgit |
3.276 |
3.234 |
3.260 |
-0.8% |
0.5% |
Singapore |
Singapore $ |
1.262 |
1.266 |
1.275 |
-0.6% |
-1.0% |
South Korea |
won |
1049.800 |
1044.700 |
1044.300 |
0.0% |
0.5% |
Taiwan |
Taiwan $ |
29.807 |
30.234 |
30.299 |
-0.2% |
-1.6% |
Thailand |
baht |
32.720 |
32.195 |
32.349 |
-0.5% |
1.1% |
Switzerland |
Swiss franc |
0.892 |
0.940 |
0.951 |
-1.2% |
-6.2% |
*Pegged to U.S. dollar |
|
|
|
|
|
|
Source: Bloomberg |
|
|
|
|
|
|
August M3 growth accelerated for a fourth consecutive month. At 2.0 percent, up from 1.8 percent in July, the annual increase in the broad money aggregate was the steepest since September 2013 and enough to lift the 3-month moving average measure from 1.5 percent to 1.8 percent. The faster annual pace of expansion in large part reflected a slower pace of contraction in credit extended to general government (1.2 percent after 1.8 percent) but also less contraction in lending to the private sector (1.5 percent after 1.6 percent). Within the latter, the yearly growth rate of borrowing by households was unchanged at minus 0.5 percent but loans for house purchase crept a tick firmer to zero. Lending to non-financial companies declined 2.2 percent after a 2.4 percent drop last time while borrowing by non-monetary financial intermediaries (excluding insurance companies and pension funds) was 0.9 percentage points stronger at minus 4.0 percent.
September Ifo climate index slipped to 104.7, the lowest level since January 2013. Both current conditions and expectations components declined ensuring a fifth and steeper than anticipated consecutive decline in the headline climate index. September's deterioration was led by expectations which were down 2.4 points at 99.3, their sharpest drop in more than two years and their weakest mark since December 2012. Expectations have now deteriorated in seven out of the last nine months. Current conditions performed only slightly better with a 0.6 point decline to 110.5, their lowest point since the middle of last year and their fifth decline in a row. Morale worsened across all of the major sectors, most markedly in wholesale and manufacturing, and all saw multi-month lows.
Final estimate of second quarter gross domestic product was unchanged on the quarter and edged up 0.1 percent from the same quarter a year ago — its worst performance since a 0.2 percent contraction recorded in the first quarter of 2013. As indicated previously, final sales were weak. A 0.4 percent quarterly rebound in household consumption and an equivalent increase in government spending were largely offset by a 1.1 percent drop in gross fixed capital formation within which residential investment was down 2.5 percent after a 2.7 percent drop at the start of the year. As a result, internal demand, excluding inventory changes, boosted headline GDP by a minimal 0.1 percent, although even this was a marked improvement on the 0.4 percentage point subtraction it made in the previous period. What little help to growth there was from domestic demand was cancelled out by net foreign trade. A disappointingly sluggish 0.1 percent quarterly advance in exports fell well short of the 0.4 percent increase in imports to see the real foreign trade contribution worsen from flat in the first quarter to minus 0.1 percentage points.
August consumer prices were up 0.2 percent on the month and 3.3 percent from the same month a year ago. Core CPI excluding fresh food was unchanged on the month and up 3.1 percent on the year. Excluding the impact of April's sales tax increase from 5 percent to 8 percent, the core CPI increase was estimated at only 1.1 percent. Excluding both food and energy, the core was up 0.1 percent and 2.3 percent from a year ago. Energy costs eased to an increase of 6.8 percent on the year after increasing 8.8 percent in July. Televisions were up 9.5 percent after 11.8 percent the month before. Goods prices were unchanged on the month and up 4.9 percent on the year while services prices gained 0.4 percent on the month and 1.8 percent from a year ago.
Equities declined as investors fretted over global growth prospects. The continuing drumbeat of underlying geopolitical concerns in Ukraine and Syria also dampened investor risk appetite. Economic data were relatively sparse during the week.
Last week's relative quiet on the economic data front will be more than made up this week. Investors will carefully monitor the European Central Bank meeting and Mario Draghi's press conference. Among the releases are the final manufacturing and composite PMIs and international trade data for Canada and the United States. The UK releases its reconstituted second quarter growth data. The week culminates with the U.S. September employment situation report.
Central Bank activities |
|
Sep 30 |
India |
Reserve Bank of India Monetary Policy Announcement |
Oct 2 |
Eurozone |
European Central Bank Monetary Policy Announcement |
|
|
|
The following indicators will be released this week... |
Europe |
|
|
Sep 29 |
Eurozone |
EC Consumer and Business Sentiment (September) |
Sep 30 |
Eurozone |
Harmonized Index of Consumer Prices (September, flash) |
|
|
Unemployment Rate (August) |
|
Germany |
Unemployment Rate (September) |
|
France |
Consumption of Manufactured Goods (August) |
|
|
Producer Price Index (August) |
|
Italy |
Producer Price Index (August) |
|
UK |
Gross Domestic Product (Q2.2014 revised) |
Oct 1 |
Eurozone |
Manufacturing PMI (September) |
|
Germany |
Manufacturing PMI (September) |
|
France |
Manufacturing PMI (September) |
|
UK |
Manufacturing PMI (September) |
Oct 2 |
Eurozone |
Producer Price Index (August) |
Oct 3 |
Eurozone |
Composite & Services PMI (September) |
|
|
Retail Sales (August) |
|
Germany |
Composite & Services PMI (September) |
|
France |
Composite & Services PMI (September) |
|
UK |
Services PMI (September) |
|
|
|
Asia/Pacific |
|
|
Sep 30 |
Japan |
Household Spending (August) |
|
|
Consumer Price Index (August) |
|
|
Unemployment (August) |
|
|
Industrial Production (August) |
|
|
Retail Sales (August) |
|
China |
Manufacturing PMI (September) |
Oct 1 |
Japan |
Tankan Survey (Q3. 2014) |
|
|
Manufacturing PMI (September) |
|
India |
Manufacturing PMI (September) |
|
China |
CFLP Manufacturing PMI (September) |
Oct 2 |
Australia |
Merchandise Trade Balance (August) |
Oct 3 |
Japan |
Services PMI (September) |
|
|
|
Americas |
|
|
Sep 30 |
Canada |
Monthly Gross Domestic Product (July) |
|
|
Industrial Product Price Index (August) |
October 3 |
Canada |
International Trade (August) |
Anne D Picker is the author of International Economic Indicators and Central Banks.
|