Week Closing On A Disappointing Note

Overview: A string of disappointing economic is spurring risk-off sentiment today. Global shares prices are being punished and core bonds are being snapped up. The US dollar is trading higher against most major and emerging market currencies. The MSCI Asia Pacific Index was flat on the week coming into today's session. Many of the large markets were off 1.5-2.0% today, and the benchmark is off for the eighth week in the past ten. European shares are getting knocked back. The Dow Jones Stoxx 600 had been up about 1.2% this week but has given it all back and a little bit more. US shares trading lower in Europe, and the S&P 500 is off around 1%. Core bond yields are a two-three basis points lower, while the US 10-year yield is off four basis points near 2.88%. Near 97.55, the Dollar Index is up a little more than 1% on the week, which, if sustained, would be the largest gain in four months.  

Asia Pacific

Business sentiment was little changed in Japan, but the Q1 19 outlook weakened slightly, according to the latest quarterly Tankan survey.  Capex plans, though, were stronger, as large businesses anticipate a 14.3% increase up from 13.4%. Many had expected a decline. Although the large manufacturers revised higher their dollar forecasts for this fiscal year, they bearish. The exchange rate is expected to average about JPY109.40 this fiscal year, up from JPY107.40 forecast in September. Thus far in the fiscal year, the dollar has averaged nearly JPY111.15. The indicative forward for the end of Q1 19 is about JPY112.40. After the data, the BOJ announced it would reduce the 5-10 year JGBs that it will be next month, the first reduction of this maturity bucket since mid-year.  

China reported disappointing retail sales and industrial output figures today. It suggests that the world's second-largest economy is weaker than economists appreciated. Retail sales slowed to 8.1% fro 8.6%, which appears to be the weakest pace since 2003. Industrial output slowed to 5.4% from 5.9%. This matches the slowest since 2002.  It is possible that the stimulative measures are not working, which many are suggesting. Yet it seems more likely that it is too soon to make such a judgment.  

Australia's preliminary December PMI warns of a poor momentum going into the New Year. Declines in both manufacturing and services drove the composite to 52.4 from 53.9. It has averaged 53.6 in Q4 and 53.6 for the entire year. Last year it averaged 55.6. The RBA is expected to remain on hold into 2020, but the risk of a cut seems higher than appreciated, especially if trade tensions escalate next year and China's slowdown deepens.   

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Gary Anderson 10 months ago Contributor's comment

Labor isn't that strong. Sale prices have hit rock bottom. Credit usage is increasing. But the rest is all good, Marc.