Equities were mixed last week as the euphoria from the multiple central bank moves of the previous weeks wore off. Continued concerns about global economic growth and in particular in China, had investors switching from optimistic — that the central bank moves over the past few weeks will return the world to growth — back to pessimistic. The Bank of Japan joined the other major central banks in announcing a surprise increase to their asset purchase program. Investors are still digesting the major central bank moves while new economic data have been on the weak side. On the week, gains ranged from 0.2 percent (Taiex) to 1.6 percent (Sensex). The Dow slipped 0.1 percent for the week while the Shanghai Composite sank 4.6 percent.
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|
2011 |
2012 |
% Change |
|
Index |
Dec 30 |
Sep 14 |
Sep 21 |
Week |
Year |
Asia/Pacific |
|
|
|
|
|
|
Australia |
All Ordinaries |
4111.0 |
4410.2 |
4430.8 |
0.5% |
7.8% |
Japan |
Nikkei 225 |
8455.4 |
9159.4 |
9110.0 |
-0.5% |
7.7% |
Hong Kong |
Hang Seng |
18434.4 |
20629.8 |
20734.9 |
0.5% |
12.5% |
S. Korea |
Kospi |
1825.7 |
2007.6 |
2002.4 |
-0.3% |
9.7% |
Singapore |
STI |
2646.4 |
3070.4 |
3078.2 |
0.3% |
16.3% |
China |
Shanghai Composite |
2199.4 |
2123.9 |
2026.7 |
-4.6% |
-7.9% |
|
|
|
|
|
|
|
India |
Sensex 30* |
15454.9 |
18464.3 |
18752.8 |
1.6% |
21.3% |
Indonesia |
Jakarta Composite |
3822.0 |
4257.0 |
4244.6 |
-0.3% |
11.1% |
Malaysia |
KLCI |
1530.7 |
1643.0 |
1623.7 |
-1.2% |
6.1% |
Philippines |
PSEi |
4372.0 |
5322.5 |
5292.1 |
-0.6% |
21.0% |
Taiwan |
Taiex |
7072.1 |
7738.1 |
7754.6 |
0.2% |
9.7% |
Thailand |
SET |
1025.3 |
1276.1 |
1286.3 |
0.8% |
25.4% |
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
UK |
FTSE 100 |
5572.3 |
5915.6 |
5852.6 |
-1.1% |
5.0% |
France |
CAC |
3159.8 |
3581.6 |
3530.7 |
-1.4% |
11.7% |
Germany |
XETRA DAX |
5898.4 |
7412.1 |
7451.6 |
0.5% |
26.3% |
Italy |
FTSE MIB |
15089.7 |
16624.5 |
15991.1 |
-3.8% |
6.0% |
Spain |
IBEX 35 |
8566.3 |
8154.5 |
8230.7 |
0.9% |
-3.9% |
Sweden |
OMX Stockholm 30 |
987.9 |
1115.0 |
1099.9 |
-1.4% |
11.3% |
Switzerland |
SMI |
5936.2 |
6559.2 |
6605.8 |
0.7% |
11.3% |
|
|
|
|
|
|
|
North America |
|
|
|
|
|
|
United States |
Dow |
12217.6 |
13593.4 |
12217.6 |
-0.1% |
11.1% |
|
NASDAQ |
2605.2 |
3184.0 |
2605.2 |
-0.1% |
22.1% |
|
S&P 500 |
1257.6 |
1465.8 |
1257.6 |
-0.4% |
16.1% |
Canada |
S&P/TSX Comp. |
11955.1 |
12499.5 |
11955.1 |
-0.9% |
3.6% |
Mexico |
Bolsa |
37077.5 |
40693.5 |
37077.5 |
-0.9% |
8.8% |
The week ended on an upbeat note after reports that the government of Spain is engaged in discussions over a potential bailout. Meanwhile, the discussions in Greece continued. And while the situation is not yet resolved, some progress reportedly has been made. The FTSE was down 1.1 percent while the CAC lost 1.4 percent. The DAX was up 0.5 percent and the SMI gained 0.7 percent.
The Spanish government and the European Commission are in talks over measures that creditors would demand if the country places an official bailout request according to the Financial Times. According to the newspaper, the plan will be unveiled next Thursday and will focus on structural reforms rather than new taxes and spending cuts. Meanwhile, discussions between the Greek government and international creditors to fix a deal on €11.5 billion spending reduction reached no clear conclusion late Thursday. Officials from the troika — the European Commission, the International Monetary Fund and the European Central Bank — will leave Athens and return again next week to try to finalize terms.
Meanwhile in Italy the Italian government slashed the economy's growth forecasts, while sharply raising its budget deficit targets. Prime Minister Mario Monti now forecasts the economy to contract 2.4 percent this year. That is double the April projection of 1.2 percent contraction. The recession is expected to continue into 2013 with GDP shrinking 0.2 percent. Italy also increased its prediction for budget deficit this year to 2.6 percent of GDP from 1.7 percent projected in April. The deficit target for 2013 was lifted to 1.8 percent of GDP from 0.5 percent.
Markets sagged during the week largely due to weak economic results especially from China. But European data also failed to impress investors. Eurozone private sector activity declined to a 39-month low in September. The composite output index, which measures activity in the manufacturing sector and the service sector combined, declined to 45.9 from 46.3 in August according to the flash release. However, the manufacturing sector decreased at a slower pace increasing to a six month high of 46 in September from 45.1 in August. However, it remained below the breakeven level of 50 that separates growth from contraction. Manufacturing in Germany continued to contract but at a slower pace than the month before while in France the sector contracted at a more rapid pace. In contrast, the U.S. sector continues to grow albeit at a tepid pace.
Equities were mixed in this region last week with six of twelve followed here advancing and six declining. Gains ranged from 0.2 percent (Taiex) to 1.6 percent (Sensex). Losses ranged from a decline of 0.3 percent (Kospi and Jakarta Composite) to a 4.6 percent (Shanghai Composite) drop. At week’s end, gains in commodities and the recent strength in the euro following easing measures announced by central banks around the world underpinned sentiment.
The Shanghai Composite was hit last week by concerns over the outlook for domestic and global growth. Chinese shares tumbled to end at a more than three and a half year low as the lackluster PMI data pointed to broader economic weakness and shrinking demand in both domestic and overseas markets. Flash results of the September manufacturing PMI edged up to 47.8 from 47.6 in the previous month. This was the eleventh consecutive month of manufacturing contraction. The repercussions from the gloomy data were felt across the region especially in Australia, a major supplier of raw materials to China. The People’s Bank of China Governor Zhou Xiaochuan said his bank will maintain the continuity and stability of monetary policies and at the same time make adjustments more forward looking, targeted and effective, according to a commentary published in the Financial News.
The minutes of the Reserve Bank of Australia’s September 4th policy meeting struck a dovish tone. Specifically, although the RBA left its policy rate unchanged at 3.50 percent for the third consecutive month, the RBA opined in the minutes that “the current assessment of the inflation outlook continued to provide scope to adjust policy in response to any significant deterioration in the outlook for growth.” For now, the Bank saw the current, moderately accommodative stance as appropriate with domestic growth expected to remain near trend and inflation within the target range. However, the RBA continues to note “a more subdued international outlook” that is “subject to significant downside risks.” Consequently, in making more explicit its easing bias, the Bank clearly signals that it is prepared to ease further if downside risks crystallize.
Reserve Bank of India
The Reserve Bank of India kept its key repurchase interest rate at 8.0 percent while at the same time it unexpectedly reduced the amount of deposits lenders must set aside as reserves, supporting the government’s push to revive growth. RBI Governor Duvvuri Subbarao cut the cash reserve ratio to 4.5 percent from 4.75 percent, effective September 22nd, adding about 170 billion rupees to the banking system.
Inflation has quickened beyond 7.5 percent, a climb that may be exacerbated by the first increase in diesel prices in 14 months and an increase in commodity prices as the U.S. steps up monetary easing. India boosted the subsidized fuel’s tariff last week to pare its fiscal deficit. It also allowed more foreign investment in the economy, the biggest policy overhaul of Prime Minister Manmohan Singh’s previously gridlocked second term. The ‘primary focus’ remains the containment of price pressures, the RBI said. Inflation and India’s fiscal and current account shortfalls constrain a stronger monetary policy response to growth risks.
Bank of Japan
As expected the Bank of Japan left its key interest rate range at zero to 0.1 percent. The vote was unanimous. However, the monetary policy board raised its asset buying target to ¥80 trillion from the previous ¥70 trillion and extended asset buying to the end of December 2013. At the same time, the Bank scrapped the minimum rate for JGB buying operations in order to ensure their smooth purchase. The goal of the extended stimulus is to lower longer term market rates and risk premiums. The monetary policy board also downgraded its economic view saying that economic activity in Japan has come to a pause while overseas economies have moved deeper into a slowdown. With interest rates near zero, the purchase of government bonds and other securities has been the main way the BoJ has tried to help put money into the economy and stimulate demand.
The U.S. dollar was up against most of its major counterparts last week with the exception of the pound sterling and yen. Despite gains by the euro on Friday against the dollar and yen after Italian and Spanish leaders agreed to keep working to stabilize regional financial markets the European currency was lower on the week.
The euro has fluctuated as negotiations flowed between the troubled Eurozone states and the troika (EU, IMF and ECB). On Friday the currency was buoyed by speculation that Spanish and European Union officials were working on plans to trigger European Central Bank bond purchases to boost Spain’s economy. The dollar has also fluctuated on the spate of ‘Fed speak’ during the week. For example, the currency declined after Atlanta Federal Reserve Bank President Dennis Lockhart said the Fed may undertake further monetary stimulus.
The yen declined briefly in response to the Bank of Japan’s expansion of its asset purchase program. But the decline was short lived. The Japanese currency, which has been one of the foreign exchange market’s top safe havens, declined broadly ahead of a two day meeting of the BoJ’s monetary policy board that began on Tuesday. The yen strengthened after reaching a four week low against the U.S. dollar as investors speculated the Bank of Japan’s unexpected monetary stimulus expansion will do little to augment economic growth.
Selected currencies — weekly results
|
|
2011 |
2012 |
% Change |
|
|
Dec 30 |
Sep 14 |
Sep 21 |
Week |
2012 |
U.S. $ per currency |
|
|
|
|
|
|
Australia |
A$ |
1.023 |
1.056 |
1.044 |
-1.1% |
2.1% |
New Zealand |
NZ$ |
0.778 |
0.830 |
0.828 |
-0.2% |
6.4% |
Canada |
C$ |
0.982 |
1.030 |
1.024 |
-0.6% |
4.3% |
Eurozone |
euro (€) |
1.294 |
1.312 |
1.298 |
-1.1% |
0.3% |
UK |
pound sterling (£) |
1.554 |
1.623 |
1.624 |
0.0% |
4.5% |
|
|
|
|
|
|
|
Currency per U.S. $ |
|
|
|
|
|
|
China |
yuan |
6.295 |
6.316 |
6.308 |
0.1% |
-0.2% |
Hong Kong |
HK$* |
7.767 |
7.751 |
7.754 |
0.0% |
0.2% |
India |
rupee |
53.065 |
53.955 |
53.265 |
1.3% |
-0.4% |
Japan |
yen |
76.975 |
78.370 |
78.130 |
0.3% |
-1.5% |
Malaysia |
ringgit |
3.168 |
3.037 |
3.058 |
-0.7% |
3.6% |
Singapore |
Singapore $ |
1.297 |
1.220 |
1.225 |
-0.4% |
5.9% |
South Korea |
won |
1152.450 |
1116.080 |
1118.930 |
-0.3% |
3.0% |
Taiwan |
Taiwan $ |
30.279 |
29.309 |
29.323 |
0.0% |
3.3% |
Thailand |
baht |
31.580 |
30.790 |
30.780 |
0.0% |
2.6% |
Switzerland |
Swiss franc |
0.939 |
0.927 |
0.933 |
-0.6% |
0.7% |
*Pegged to U.S. dollar |
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Source: Bloomberg |
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July seasonally adjusted trade surplus narrowed from a smaller revised €9.3 billion in June to €7.9 billion. The unadjusted surplus was €15.6 billion, up substantially from a €2.1 billion surplus in July 2011 and its strongest performance since January 1999. The deterioration in the seasonally adjusted headline was attributable to a 2.0 percent monthly drop in exports, their first fall since April. This more than offset a 1.2 percent decline in imports, their fourth in the last five months. Annual export growth now stands at 11.0 percent, some 9 percentage points ahead of imports.
September ZEW survey current conditions measure was 12.6 — 5.6 points weaker than in August. However, expectations were up 7.3 points to minus 18.2, their first increase since April and their highest level since June. This still suggests that analysts are generally quite downbeat and see the economy losing momentum over the next six months but at least not as quickly as in August. The slightly less negative view here was partly attributed to the announcement of the ECB's bond buying program at the ECB's policy setting meeting earlier this month.
August producer prices were up 0.5 percent from July and were up 1.6 percent on the year and up from 0.9 percent last time. Energy prices dominated the headline gain and without this sector the PPI would have risen just 0.2 percent from the start of the quarter and 0.9 percent on the year. Basic goods prices were unchanged on the month, an outcome matched by capital goods, while consumer goods were 0.4 percent firmer.
August consumer prices were up 0.5 percent on the month and 2.5 percent on the year. There was surprisingly good news on the core index which saw its 12-month growth rate slide 0.2 percentage points to 2.1 percent, just 0.1 percent above the CPI target level. The main upward pressure on prices last month came from the transport sector which, as a whole, registered a 1.3 percent advance over July and alone contributed 0.2 percentage points the headline monthly change. Another jump in petrol costs was largely responsible here, together with the usual seasonal increase in air fares. Elsewhere there were also strong increases in clothing & footwear (2.8 percent) as well as in furniture & household goods (0.8 percent). However, other categories were typically well behaved although only recreation & culture posted an outright monthly decline (0.2 percent).
August retail sales were down 0.2 percent on the month and were up 2.7 percent from a year ago. Excluding motor fuel, sales slid 0.3 percent but were up 3.1 percent on the year. Anecdotal evidence suggested strongly that the August figures were hit by the Olympics and this would seem to be borne out in a 6.7 percent monthly slump in non-store retailing as online shopping was particularly badly affected. Elsewhere the picture was mixed. Household goods registered a 2.7 percent monthly loss and non-specialized stores a 0.7 percent drop, but clothing & footwear sales jumped 1.6 percent and the other stores category saw a 1.5 percent advance. Excluding fuel, both food and non-food volumes were 0.2 percent higher than in July. Over the last three months, total sales volumes were down only 0.1 percent from the previous period while non-fuel demand was up 1.0 percent.
August unadjusted merchandise trade deficit was Y754.1 billion. Exports were dropped 5.8 percent on the year while imports were 5.4 percent lower. Exports were down for the third consecutive month while imports were down for the first time in two months. The data show that slowing growth overseas continues to weigh on the Japanese economy. Exports to the U.S. were up 10.3 percent for the tenth straight increase. Exports to the EU plunged 22.9 percent for the eleventh consecutive decline. Exports to Asia slid 6.7 percent while those to China dropped 9.9 percent. Both were down for a third month. On a seasonally adjusted basis, the trade deficit was Y472.8 billion. The seasonally adjusted trade balance has been in deficit since March 2011. Exports were down 2.1 percent from July and down 7.1 percent from a year ago. Imports slipped 0.2 percent on the month and were down 3.5 percent on the year.
August consumer price index was up 0.2 percent from July and was 1.2 percent higher on the year. Both excluding food & energy and the Bank of Canada’s own version of the core posted their first monthly advance in three months but at 0.2 percent and 0.3 percent respectively, posed little inflationary threat. Annual growth in the former is now 1.1 percent while the latter's increase was 1.6 percent. On a seasonally adjusted basis, the CPI was up 0.4 percent following declines of 0.2 percent and 0.1 percent in June and July respectively. Within the adjusted basket, monthly price increases were quite broad based but only transportation (1.3 percent) and health & personal care (0.5 percent) proved noteworthy. Food was up 0.4 percent but household operations, furnishings & equipment (down 0.2 percent) as well as clothing & footwear (down 0.4 percent) saw declines.
The Bank of Japan joined the Federal Reserve and European Central Bank and introduced new stimulus into Japan’s sagging economy. The flash September purchasing managers’ indexes contracted in the Eurozone, Germany, France and China but remained positive in the U.S.
The pace of new economic data picks up in the last week of the month and quarter. Japan as usual, will release its key data for August including unemployment, consumer prices, industrial production and consumer spending. Investors will be looking at the data for any sign that central bank easing is having an effect, even though it is too early to tell for the most recent round.
The following indicators will be released this week... |
Europe |
|
|
Sep 24 |
Germany |
Ifo Survey (September) |
Sep 27 |
Eurozone |
M3 Money Supply (August) |
|
|
Business and Consumer Sentiment (September) |
|
Germany |
Unemployment (September) |
|
UK |
Gross Domestic Product (Q2.2012 final estimate) |
Sep 28 |
Eurozone |
Harmonized Index of Consumer Prices (September, flash) |
|
France |
Gross Domestic Product (Q2.2012 final estimate) |
|
|
Consumption of Manufactured Goods (August) |
|
|
Producer Price Index (August) |
|
|
|
Asia/Pacific |
|
|
Sep 28 |
Japan |
Unemployment Rate (August) |
|
|
Consumer Price Index (August) |
|
|
Household Spending (August) |
|
|
Retail Sales (August) |
|
|
Industrial Production (August) |
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|
Americas |
|
|
Sep 25 |
Canada |
Retail Sales (July) |
Sep 28 |
Canada |
Monthly Gross Domestic Product (July) |
Anne D Picker is the author of International Economic Indicators and Central Banks.
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