The Wall Street Journal reports,"European and Asian equity markets weakened in early trading. The tenor was set by a soft Chinese manufacturing survey and the Federal Reserve’s indication that it would continue to pare back its asset purchase program during the coming months unless there’s a dramatic weakening of the economy. Meanwhile, the Ukrainian crisis might also be feeding through to sentiment.
Overall, the early news on Thursday signaled risk-off. China’s economy seems to be slowing, notwithstanding a huge surge of lending during January. Meanwhile the Fed’s taper is still on. And while the Ukraine’s crisis is unlikely to have any systemic effects, it does little to help sentiment, while also casting a shadow over Russia. Offsetting this slightly are hopeful signs from the European purchasing managers’ surveys, though this too is mitigated by signs that the French economy could be slipping toward deflation".
JAPAN: January trade deficit hits a record 2.79 trillion yen ($27.3 billion), as a 25% jump in imports dwarfed a 9.5% rise in the value of exports. The export figure was flattened by the weak yen, as exports by volume actually declined 0.2%.
Abenomics’ promised export bounce hasn’t really materialized yet, as the benefits of a weaker currency have been undercut by the longer-term trend of manufacturers moving production overseas to be closer to their customers and reduce the risks of currency fluctuation. Imports have surged partly on higher costs for imported oil, but spending on imported items like clothes, washing machines and cars –- cars produced by Japanese companies abroad now show up as imports — suggests domestic demand is picking up as the government has hoped. An April rise in the sales tax is expected to dampen consumption going forward, but at the same time, the growing recovery in the United States and Europe should finally begin to help Japan’s exporters. That won’t come a moment too soon for Prime Minister Shinzo Abe, who has seen his economic program stall in recent months after his term began with much success.
CHINA: February manufacturing PMI 48.3 from 49.5 in January.
China’s manufacturing PMI hit a seven-month low in February — showing contraction at a quickening pace — adding fuel to concerns that the world’s second-largest economy is heading for a hard landing. Sub-indexes in the data for new orders, new export orders and employment all fell. Chinese policy makers long have talked of reorienting the economy toward domestic consumption, but industry is still a major driver of growth, and slower manufacturing would point to overall weakness ahead for China’s economy. That, in turn, would mean softer global demand for commodities internationally. To be sure, Chinese data early in the year is often distorted by the Lunar New Year holiday, and must be taken with a grain of salt. But given the worries about China’s economy – a new Bank of America Merrill Lynch survey found that fund managers now see a hard landing in China as the biggest threat to the global economy – the PMI data is certain to raise the alarm level even more.
Talk of a Ukrainian civil war gathers pace as clashes between Russian-leaning government and Western-favoring protesters gets bloodier and more intransigent. The European Union is mulling sanctions while Russia has postponed promised financial support, compounding the country’s problems.
Germany’s economy may be picking up strongly, according to the latest purchasing managers’ survey, but there’s no inflationary pressure in the pipeline. The European Central Bank’s bias will continue to be toward lower for much longer.
Worries about looming French deflation are hardly likely to be alleviated by the latest consumer price numbers. The January data showed the biggest drop on record. Policy makers will be hoping that this is down to temporary factors, like falling commodity prices. But coupled with a soft PMI survey, the signs are that weak domestic demand is behind the downward price pressures.
Euro-zone business lost momentum in February according to the latest Markit survey, in large part because of a surprise softening in French activity, which mitigated continued strength in Germany. Overall German activity came in at the strongest in three years. The hopeful signs in this report are that Germany might be rebalancing slightly to domestic consumption from manufacturing, but the French survey raises concerns about the state of the single currency’s second-biggest economy.
