Global Investing

Three snapshots for Monday

ISM report on U.S. manufacturing shows PMI at 53.4 in March against 52.4 in February:

Euro zone unemployment rose to 10.8% in February, with youth unemployment in Spain reaching 50.5%

China’s official Purchasing Managers’ Index (PMI) hit an 11-month high with a stronger-than-expected reading but a separate private survey by HSBC, which focuses more on smaller factories than the large state-owned enterprises captured in the official data, painted a gloomier picture:

March world equity funk flattered by Wall St

It was all about the United States last month as far as equity markets were concerned. S&P’s world equity index may have ended the month with a small gain of just 0.3 percent but that was down to a 3 percent rise on  U.S. markets, data from the index provider shows. Strip out the U.S. contribution and it would have been a pretty poor month for world equities. Beyond Wall St, there was a decline of 1.7 percent and $285 billion lost in market value. Instead, the $418 billion added to U.S. market capitalization dragged the global aggregate up by $132 billion.

Behind the robust U.S. equity performance was a steady flow of strong economic data which also pushed up U.S. 10-year yields 20 bps last month. S&P index analyst Howard Silverblatt writes:

The overall rationale for the U.S. outperformance is the perception that several parts of the world have re-entered a recession, while the U.S. continues to show a slow, but steady recovery.

BRICS: future aid superpowers?

Britain’s aid programme for India hit the headlines this year, when New Delhi, much to the fury of the Daily Mail, described Britain’s £200 million annual aid to it as peanuts. Whether it makes sense to send money to a fast-growing emerging power that spends billions of dollars on arms is up for debate but few know that India has been boosting its own aid programme for other poor nations.  A report released today by NGO Global Health Strategies Initiatives (GHSi) finds that India’s foreign assistance grew 10.8 percent annually between 2005 and 2010.

The actual sums flowing from India are,  to use its own phrase, peanuts. The country provided $680 million in 2010. Compare that to the $3.2 billion annual contribution even from crisis-hit Italy. The difference is that Indian donations have risen from $443 million in 2005, while Italy’s have fallen 10 percent in this period, GHSi found. Indian aid has grown in fact at a rate 10 times that of the United States. Add to that Indian pharma companies’ contribution – the source of 60- 80 percent of the vaccines procured by United Nations agencies.

Other members of the BRICS group of developing countries are also stepping up overseas assistance, with a special focus on healthcare, the report said. BRICS leaders meet this week to ink a deal on setting up a BRICS development bank.

Three snapshots for Monday

Is China heading for a hard or soft landing? One chart to keep an eye on is the relative performance of materials equities, the long run of outperformance since 2000 looks like it might be rolling over.

Germany’s Ifo business sentiment index rose unexpectedly in March, moving in the opposite direction to the the PMI released last week:

Italian consumer morale also rose to 96.8, economists were expecting a slight decline to 93.7.

Three snapshots for Thursday

The euro zone’s economy took an unexpected turn for the worse in March, hit by a sharp fall in French and German factory activity. The manufacturing purchasing managers indexes for France and Germany were both worse than even the most pessimistic expectations from economists polled by Reuters.

China’s HSBC manufacturing PMI also fell to 48.1, below 50 for a fifth straight month.

“Reflation trade”? Equities have been tracking the 5yr breakeven inflation rate derived from inflation-protected bonds.

Yuan risks uniting bulls and bears?

Is the outlook for China’s yuan uniting the biggest global markets bulls and bears? Well, kind of.

As China posts its biggest trade deficit (yes, that’s a deficit) of the new millennium and its monetary authorities flag greater “flexibility” of the yuan exchange rate (the PBOC engineered the US$/yuan’s second biggest daily drop on record on Monday), the chances of an internationally-controversial weakening of yuan in a U.S. election year have risen.  A weaker yuan would clearly up the ante in the global currency war, coming as it does amid Japan’s successful weakening of its yen this year and as Brazil on Monday felt emboldened enough in its battle to counter G7 devaluations by extending a tax curbing foreign inflows.  And, arguably, it could bring the whole conflagration around full circle, where currency weakening in the BRICs and other emerging economies blunts one of the desired effects of money-printing and super-lax monetary policy in the G7 — merely encouraging even more printing and so on.

Societe Generale’s long-time global markets bear Albert Edwards argued as much last week:  “We have long stated that if the Chinese economy looks to be hard landing, as we believe it will, the authorities there will actively consider renminbi devaluation, despite the political consequences of such action.”

Three snapshots for Monday

China’s trade balance plunged $31.5 billion into the red in February as imports swamped exports.  It followed reports on Friday that inflation cooled in February while retail sales and industrial output fell below forecast, all pointing to a gradual cooling.

Investors ploughed more money into hedge funds over the past month as performance has picked up after last year’s losses.

Final Q4 Italian GDP growth came in at -0.7%q/q. This chart showing GDP vs the Markit purchasing managers’ index shows the current recession may continue into this year.

Three snapshots for Friday

The U.S. economy probably created 210,000 jobs last month, according to a Reuters survey. If the forecasts are accurate, the government’s jobs report on Friday would mark the first time since early 2011 that payrolls have grown by more than 200,000 for three months in a row. Refresh chart

China’s annual consumer inflation slowed sharply to a 20-month low in February, and factory output and retail sales also cooled more than forecast, giving policymakers ample room to further loosen monetary policy to support flagging growth.

Greece averted the immediate risk of an uncontrolled default, winning strong acceptance from its private creditors for a bond swap deal which will ease its massive public debt and clear the way for a new international bailout.

Fresh skirmishes in global currency war

Amid all the furious G7 money printing of recent years, Brazil was the first to sound the air raid siren in the “international currency war”  back in 2010 and it continues to cry foul over the past week. With its finance ministry issuing fresh warnings last night over hot-money flows being dropped by western economies on its unsuspecting exporters via currency speculation,  Brazil’s central bank then set off its own defensive anti aircraft battery with a surprisingly deep interest rate cut late Wednesday. Having tried everything from taxes on hot foreign inflows to currency market intervention, they are braced for a long war and there’s little sign of the flood of cheap money from the United States, Europe and Japan ending anytime soon. So, if  you can’t beat them, do you simply join them?

The prospect of  a deepening of this currency conflict — essentially beggar-thy-neighbour devaluation policies designed to keep countries’ share of ebbing world growth intact — was a hot topic this week for Societe Generale’s long-standing global markets bear Albert Edwards. Edwards, who represent’s SG’s “Alternative View”, reckons the biggest development in the currency battle this year has been the sharp retreat of Japan’s yen and this could well drag China into the fray if global growth continues to wither later this year. He highlighted the Japan/China standoff with the following graphic of yen and yuan nominal trade-weighted exchange rates.

Edwards goes on to say that this could, in turn, create another explosive FX standoff between China and the United States if Beijing were to consider devaluation — the opposite of what the protectionist U.S. lobby has been screaming for for years.

Emerging beats developed in 2012

Robust growth from the emerging market basket in January was always going to be tough to beat, but research from February’s gains show just how strong these markets are performing against developed ones, and not just from the traditional BRICs either, research from S&P Indices shows.

Egypt has been a prime example. Following a bout of political unrest and subsequent removal of Hosni Mubarak after nearly 30 years in power, Egypt’s market returns have rocketed, climbing 15.3 percent in February on top of January’s 44.3 percent take-off.

Thailand, Chile, Turkey and Colombia are also on the to-watch list as these emerging lights have all flashed double-digit returns in the first two months of this year, while all twenty emerging markets included in the S&P data were up, gaining an average of 6.62 percent, making gains in the year-to-date a mouth-watering 18.95 percent.