After the taper decision by the FOMC yesterday evening, in the overnight trading session Asian shares were sold off as emerging market jitters re-appeared and nowhere were these jitters more evident than in Japan, where the Nikkei index closed down 3.3%. China’s CSI sold off as the manufacturing PMI (courtesy of Markit Economics) came in slightly worse than predicted and previously at 49.5. Average production costs fell significantly suggesting two factors are in play; China is squeezing its suppliers, particularly foreign suppliers such as Australia and or there is little in the way of reinvestment – in terms of machinery and or labour.
German unemployment data was released within the past hour and the fall in unemployment numbers came in far better than analysts predicted, good news for Europe and its biggest economy. At 6.8% unemployed the figure is near a two decade low. This compliments other recent data suggesting that the German economy is motoring ahead.
Spain’s GDP has improved remarkably over the past twelve months, despite its horrific unemployment count still being a permanent scar on the economy and society – over 50% youth unemployment with circa 26% overall unemployment. GDP rose to 0.3% positive for the last quarter on record.
Later this afternoon we’ll receive data from the USA illustrating if the GDP figure has improved. The prediction is for a fall to 3.3% from the previous 4.1% growth. If the figure comes in below expectations then the overall nervousness currently enveloping global markets may cause investors to sell off equities in the USA (once again) in this afternoon’s trading session. The DJIA has shed close on 850 points since reaching a recorded high on December 31st 2013. The jobs numbers, in terms of the weekly claimant count, could also improve sentiment, particularly in light of the fact that Ben Bernanke went to great lengths yesterday to explain the tethering of the improved jobs climate with his/the FOMC’s decision to taper further, albeit by a reduced amount to $65 billion per month moving forward.
HSBC China Manufacturing PMI
January data signalled a deterioration of operating conditions in China’s manufacturing sector for the first time in six months. The deterioration of the headline PMI largely reflected weaker expansions of both output and new business over the month. Firms also cut their staffing levels at the quickest pace since March 2009. On the price front, average production costs declined at a marked rate, while firms lowered their output charges for the second successive month. After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index (PMI) posted at 49.5 in January, down fractionally.
Spanish recovery picks up pace as GDP rises 0.3%
Spain’s economic recovery picked up the pace in the fourth quarter, as expected, posting its second quarterly positive reading after a two-year recession, the country’s statistics institute INE said Thursday. Spain’s gross domestic product rose 0.3% in the fourth quarter from the third, INE said, in its preliminary GDP estimate for the quarter.
German Joblessness Falls More Than Forecast as Economy Grows
German unemployment declined more than forecast in January as companies grew more confident in the strength of Europe’s largest economy. The number of people out of work decreased by a seasonally-adjusted 28,000 to 2.93 million, after falling a revised 19,000 in December, the Nuremberg-based Federal Labor Agency said today. Economists predicted a drop of 5,000, according to the median of 34 estimates in a Bloomberg News survey. The adjusted jobless rate was 6.8 percent, unchanged from December and near a two-decade low.
Market snapshot at 10:00 am UK time
Worries over the strength of emerging markets, post the USA FOMC tapering decision, have returned. In Asia, equity markets experienced sharp losses after the Federal Reserve continued to scale back its monetary stimulus programme, erasing gains from Wednesday’s relief rally. The sharpest losses were in Japan, where the Nikkei 225 dropped 3.3 per cent, on target for its biggest fall since early August. The Nikkei has suffered an 8.7 per cent loss this month, making it the worst regional performer this year. The ASX 200 closed down 0.78%, the CSI 300 down 1.14%, the Hang Seng down 0.48%.
In Europe Euro STOXX is down 0.35%, CAC down 0.43%, DAX down 0.41% and the UK FTSE down 0.36%. The Istanbul 30 is down 1.26%. NYMEX WTI oil is up 0.52% at $97.87 per barrel, with NYMEX nat gas down 3.64% at $5.27 per therm.
Looking towards New York’s open the DJIA equity index future is up 0.13%, the SPX future is up 0.14% and the NASDAQ future is up 0.20%.
Forex focus
The dollar strengthened 0.4 percent to $1.3612 per euro early London time. It was little changed at 102.43 yen, while the euro slipped 0.2 percent to 139.41 yen. The dollar rose against the euro for a fifth day after the Federal Reserve scaled back its stimulus programme of bond purchases, weakening the currency and before data that may underscore the strength of U.S. growth.
The pound dropped 0.2 percent to $1.6537 early morning London time. It rose to $1.6668 on Jan. 24th, the highest since May 2011. The U.K. currency was at 82.45 pence per euro after appreciating to 81.68 pence on Jan. 22nd, the strongest level since Jan. 10th, 2013.
Sterling gained 10 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg’s Correlation-Weighted Indices. The euro rose 5.5 percent and the dollar has strengthened by 5 percent. The pound declined for a third day versus the dollar before a Bank of England report that economists said will show mortgage approvals rose to the highest level in six years last month.
Bonds briefing
The benchmark USA 10-year debt yield added two basis points, or 0.02 percentage point, to 2.70 percent early London time. The 2.75 percent note due in November 2023 fell 6/32, or $1.88 per $1,000 face amount, to 100 14/32. The five-year rate climbed three basis points to 1.53 percent. Treasury notes declined before $64 billion in debt auctions today amid concern yields near a two-month low will hurt investor demand as the Federal Reserve reduces its purchases of the securities.
Germany’s two-year rate dropped less than one basis point, or 0.01 percentage point, to 0.11 percent early London time after declining to 0.1 percent, the lowest since Nov. 21st. The zero percent note due in December 2015 rose 0.01, or 10 euro cents per 1,000-euro face amount, to 99.805. The nation’s 10-year yield fell one basis point to 1.73 percent. Germany’s two-year note yield dropped to the lowest level since November before a report analysts said will show inflation in Europe’s biggest economy increased in the year through January.
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