Subject: Fwd:>>> Q1 European timeline ECB / Greece...
Weekly Market Update: New Year's Blues
Trading volumes were very light in the New Year's holiday week. Global equity markets dipped during the final session of 2014 and then fell lower on the first day of trading in the New Year as weak data and jitters about upcoming Fed and ECB action drove risk appetite into the deep freeze. Manufacturing industry data from around the globe out this week was not especially positive, adding to the tepid atmosphere.
Looking back, 2014 was very good for major US equities: the S&P 500 rose 11% to 2,059, its sixth year of positive returns and its third straight year of double-digit gains. The DJIA added 7.5% to 17,823 after slipping below 18,000 on the final two days of trading, and the Nasdaq advanced 13%. Small-cap stocks were not quite as solid: the Russell 2000 climbed 3.5%. Europe's EuroStoxx 600 Index gained 3.9% on the year and Germany's DAX Index added 2.7%, although France's CAC40 dropped 1.2%. Chinese equities had their best performance since 2009 even as overall emerging-market shares posted the first back-to-back annual loss in 12 years.
US housing market data out this week remained tepid. The S&P/CaseShiller October home price survey showed that real estate price gains slowing a bit. The y/y gain dropped to +4.5% from +4.8% in September. Yale economist Shiller commented that the housing market is fragile and is still reliant on low interest rates. The November pending home sales m/m figure beat expectations and returned to positive territory after October's contraction. The December Chicago Purchasing Manager survey and the ISM Manufacturing Index missed expectations, hitting their lowest levels since mid-2014.
Oil prices sagged to fresh five-year lows, with front-month WTI dropping from the mid-$55 area on Monday as low as $52.50 on Wednesday. The contract bounced off the lows but by Friday came very close to the $52 level. Brent crude bottomed around $55.50 but closed out the week around $56. Interestingly the oil equities themselves continue hold up better. The OIH and XLE remain above their mid-December lows which expedited the latest move to fresh all-time highs for US stock indices.
Comments from ECB President Draghi and ECB Chief Economist Praet left little doubt that quantitative easing is imminent. On Tuesday, Praet said euro zone inflation was below 0% and would stay there for an extended period. The official December euro zone CPI reading is out next week could cement expectations for European QE after the November reading matched a 4-year low at 0.3%. Praet argued that sovereign bonds were the only asset class with enough volume to make an impact on the inflation issue. Draghi was less sanguine, but highlighted that the risk of deflation in euro zone cannot be ruled out. Unsurprisingly, various German figures refuted these assertions. Germany's 'wisemen' said there was no deflation while the CDU Deputy party Chairman Fuchs said the euro zone was no longer obligated to rescue Greece as they were no longer systemically important. Between imminent QE and the Greek situation, EUR/USD gravitated toward the psychological 1.2000 level (though did not break through) and the 10-year bund yield fell to fresh all-time lows of 0.49% while the 5-year now offers a negative yield for the first time ever.
The Greek political crisis helped push yield spreads to fresh record levels as the Greek 10-year yield approached 10% even as most other EU government bonds are at or near record low yields. After lawmakers rejected the government's candidate for president last weekend, Greek PM Samaras was forced to dissolve the parliament and call a general election on January 25th. Polls showed Syriza, the leftist, anti-bailout opposition party of Alexis Tsipras, to be the frontrunner in the race. Tsipras has promised to get a better deal from the Troika on Greece's bailout payments. The EU has sternly warned that any new government must abide by prior obligations, suggesting that in the event of a Syriza victory irreconcilable differences could lead to a "Grexit."
China's official December Manufacturing PMI survey hit its lowest level since mid-2013, even as the non-manufacturing survey recovered to a four-month high. Manufacturing PMI components New Orders and Output were at 2014 lows, and inventories and employment were at 10-month lows. November industrial profits data fell by 4.2%, the largest y/y decline in 27 months. The PBoC published a report confirming that the government would change the rules on loan-to-deposit ratio calculations in 2015 to inject further liquidity into the system. The new rules would allow the inclusion of savings held by banks for non-deposit-taking financial institutions in banks' deposits, expanding the ratios and boosting lending capacity.
In Japan, Prime Minister Abe continues to fine-tune his efforts to extinguish deflation and jumpstart the economy. The government said it is planning a $29B (¥3.5T) fiscal stimulus package, featuring subsidies for households to help stimulate consumption along with more relief for earthquake-hit areas. The plan is estimated to add 0.7% to 2015 GDP growth. The government also announced it would aim to cut the corporate tax rate to below 30% over the next several years. The FY15/16 tax reform will cut the corporate rate to 32.1% from 34.6%.
Back in September, before the crude crash started in earnest driven far more by the relentless Chinese - and global - economic slowdown than anything OPEC may or may not have done (and whose output, as a reminder, hasn't changed in years and actually declined, indicating the plunge is demand not supply driven) we showed, with the help of a few clear charts, that China is gripped by the worst commodity, and economic, crash in ages.Today we update where China stands on its path to a very hard landing. As the charts below show, what has been so far a controlled descent is rapidly sliding out of control as the elephant-dragon in the room can no longer be ignored.China's NBS manufacturing PMI at 50.1 in December, down from 50.3 in November, the lowest in one and a half years.
Industrial production (IP) growth declined to 7.2% yoy in November from 7.7% yoy in October. Growth in power production decelerated to 0.6% yoy in November from 1.9% in October.
Output growth of electricity, steel, cement and oil refining fell to 0.6%, 1.2%, -4.0% and 5.5% respectively from 1.9%, 2.0%, -1.1% and 6.3% in October.
Headline year-to-date FAI growth ticked down to 15.8% yoy in November from 15.9% yoy in October, in line with consensus. Real ytd FAI growth could have edged down to 15.3% yoy in November from 15.4% yoy in October. On a monthly basis, nominal FAI growth increased to 14.9% yoy in November from 14.4% yoy in October.
Investment growth of local projects (88% of total FAI) was 16.2% yoy in November, unchanged from September. Investment growth of central government projects dropped to -11.0% yoy in November from 0.2% yoy in October.
Real estate FAI growth edged down to 10.5% yoy in November from 10.9% yoy in October.
Retail sales growth quickened to 11.7% yoy in November from 11.5% in October. In real terms, it accelerated to 11.2% from 10.8%. It was buoyed by surging sales during the Single Day (11 November).
Growth in total auto sales in volume dropped to 2.3% in November from 2.8% in October. Growth in passenger cars fell to 4.7% in November from 6.4% in October.
CPI and PPI inflation slowed o 1.4% and -2.7% yoy in Nov from 1.6% and -2.2% in Oct. Both CPI and PPI inflations surprised on the downside.
In mom terms (not seasonally adjusted), food prices decreased by -0.4% in November as the warmerthan- usual weather ensured ample supply of vegetables and fruits.
Otstanding Total Social Financing edged down to 15.3% in November from 15.4% in October (read: "China's Shadow Banking Grinds To A Halt As Bad Debt Surges Most In A Decade")
November export growth came in below expectations at 4.7% vs. 11.6% in October (market consensus 8.0%). Import growth surprised on the downside at -6.7% from 4.6% in October and (market consensus 3.8%).
Growth in processing imports, a leading indicator of processing exports, declined to 3.9% yoy in November from 24.0% in October. Low-value-added processing exports plummeted to 1.6% yoy from 9.1% in October.
In November, new export orders dropped further to 48.4 from 49.9, likely showing the impact of CNY appreciation in NEER terms in 2014. In the meantime, monthly export growth dropped to 4.7% from 11.6% in October.
Export growth to the US declined sharply to 2.6% yoy in November from 10.9% yoy in October, while export growth to Japan improved to - 5.8% yoy in November from - 8.1% in October. Export growth to the EU was largely unchanged at 4.1% yoy in November. Export growth to ASEAN slowed to 14.6% yoy in November from 18.0% in October.Growth in imports from ASEAN declined to -8.2% in November from 24.5% in October. Meanwhile, import growth from EU dropped to -6.8% from 10.4% yoy in October.
In volume terms, growth in iron ore, copper and crude oil imports slumped to -13.4%, - 3.6% and 7.9% yoy in November from 17.0%, -2.4% and 18.0% yoy, respectively, in October. In value terms, growth in iron ore, copper and crude oil imports dropped to -46.2%, - 9.8% and -10.9% yoy in November from -24.7%, - 5.6% and 3.8% in October, respectively.
In yoy terms, the number of cities that saw new home prices down/flat/up changed to 68/0/2 in November, compared to 67/0/3 in October. Prices of new commodity residential properties for 70 medium-to-large-sized cities surveyed by the National Bureau of Statistics (NBS) declined by 0.59% mom in November, versus 0.83% in October.
On the demand side, the yoy growth in new home sales in floor space terms and value terms slumped to -13.3% and -7.9% yoy in November from - 3.4% and -3.1% yoy, respectively, in October.
New home starts growth plummeted to -33.8% yoy in November from 38.6% yoy in October. The volatility in the yoy growth rates of new starts was partly due to big swings in the data last year. Growth in residential property investment dropped to 5.5% in November from 9.5% yoy in October.
Credit conditions for property developers worsened in November. Growth in domestic loans, a main source of funding for property development, declined to -10.6% yoy in November from 3.3% yoy in October. Meanwhile, growth in pre-sale proceeds dropped to -20.3% yoy in November from -12.1% yoy in October partly due to deceleration in home sales growth.
And the punchline chart: the Shanghai Composite over the past 12 months.Source: BofA, Bloomberg