We start with China where the official manufacturing PMI report is showing a mild contraction in the sector. This is consistent with the HSBC/Markit results that have the PMI below 50 as well (which means contraction). There is no indication of a major downturn, but we definitely have a slowdown.
With major industrial commodities markets in Asia oversupplied, shipping costs continue to fall – as evidenced by the Baltic Dry index. To put this into perspective, this index is now at a 28-year low.
Related to the economic slowdown across Asia/Pacific, take a look at the weakness in the Singapore dollar (chart shows USD rising against SGD). The question is whether Hong Kong considers abandoning its peg to USD as other Asian nations devalue. What about China?
In the Eurozone, the new Greek government seems confident that a debt compromise can indeed be reached within months. Supposedly France will help Greece negotiate with its creditors. Greece has the upper hand because nobody wants Grexit (consequences of which could be a disaster for the EMU) and nobody wants Russia bailing out Greece.
In the meantime, inspired by Greece, Spain’s anti-austerity protesters took to the streets in huge numbers. While the Greek election results are unlikely to be repeated elsewhere in the Eurozone, the political winds are shifting.
Rate hike expectations in the UK have fallen dramatically in the face of deflationary pressures across Europe. Here are the forward rate hike expectations in the US and the UK.
More concerns are being raised about Canada’s economy, as analysts dig deeper into what has transpired in the energy markets. While focus has been on Brent & WTI prices, here is the price chart of Western Canadian Select crude (around $30 /bbl now). No matter how much one cuts production costs, we are looking at deep losses for energy producers – and little hope of recovery.
Now, a quick note on the US GDP miss. As discussed before, softer GDP was driven by bigger trade deficit, as Americans bought more foreign stuff while US exporters sold less in dollar terms (for example selling cheaper gasoline abroad reduces the dollar value of exports). But what would happen if trade was taken out of the GDP measure? According to the WSJ the Q4 GDP would have grown by 3.6% instead of 2.6% (annualized), given that the domestic demand remained relatively strong.
– Stocks in Shanghai and Hong Kong fell on growth concerns after weekend data showed that China’s manufacturing sector shrank in January for the first time in more than two years. The Nikkei also slipped, tracking the fall in US stocks after weak GDP figures on Friday. (FT, WSJ$)
– Greece wants to go cold turkey Greek finance minister Yanis Varoufakis said Athens would reject further loans under its international rescue plan, despite its EUR172bn bailout expiring at the end of the month. “We have resembled drug addicts craving the next dose,” he said. “What this government is all about is ending the addiction.” (FT)
– Kaisa chief quits Jin Zhigang, chief executive of the troubled Chinese property developer, becomes the fourth high-level executive to quit in the past six weeks. Kaisa’s troubles began in December when the local government imposed a sales ban on the company’s Shenzhen projects – trading in its stocks have been halted since late December. (FT)
– US considers arming Ukraine Russia-backed separatists have ramped up their attacks on Ukraine and Nato’s military commander now supports providing defensive weapons to Kiev’s forces, so the Obama administration is considering military aid ahead of John Kerry’s visit to Kiev on Thursday. (NYT$)
– Dollar danger A rising dollar is not the picnic it is made out to be, says Edward Luce. Export growth is slowing, the widely forecast stampede of reshoring is not really happening and the US recovery is based on rising consumption, rather than investment. (FT)
– Exclusive: Obama 2016 budget urges U.S. states to cut emissions faster | Reuters
– Croatia writes off debts for poorest citizens – Telegraph
– France Open to Easing Greek Debt Burden: Finance Minister – Bloomberg Business
– China’s Stocks Fall Most in Two Weeks on Manufacturing, Minsheng – Bloomberg Business