EUROPE & ASIA: DOWN
European shares sank for a third day on Tuesday as a slide in oil prices showed no sign of easing off, supporting traditional safe-haven assets such as top-rated government bonds, the Japanese yen and the Swiss franc.
Asian shares had slumped overnight after another day of drama on oil markets that drove U.S. crude to less than $50 a barrel for the first time since the first half of 2009 and handed Wall Street its worst losses in three months.
The resulting bid for safety drove the average of yields on German DE10YT=RR, U.S. US10YT=RR and Japanese JP10YT=RR 10-year debt to less than 1 percent for the first time.
Also hit by a poor reading from a purchasing managers' survey in Italy, all of Europe's major exchanges were in negative territory an hour into morning trade.
"Global risk sentiment has been hurt by sliding stocks and oil prices. That is leading to a perception that there is a lack of demand and that has implications for global growth," said Jeremy Stretch, head of currency strategy at CIBC World Markets.
The FTSEuroFirst 300 index of leading shares .FTEU3, along with France's CAC40 .FCHI and Germany's DAX .GDAXI, were all down 0.8 percent. Britain's oil and gas heavy FTSE index lost 1.3 percent .FTSE.
Japan's Nikkei .N225 dropped 3 percent, its largest fall in almost 10 months while South Korean shares fell 1.7 percent to a 1-1/2-year low. Even high-flying mainland Chinese shares .CSI300 pulled back after hitting 5-1/2-year highs earlier in the session. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 1.4 percent.
The slide in oil prices has shown little sign of abating in the new year, plunging as much as 6 percent on Monday as investors continue to reprice for broadly lower global demand and the impact of heavy U.S. shale drilling.
Brent crude LCOc1 fell by another 1.5 percent to less than $53 after data showed Russian oil output at post-Soviet era highs and Iraqi oil exports near 35-year peaks.
"Falls in oil prices are going beyond many people's expectations. This will put pressure on the earnings of U.S. energy firms," said Hirokazu Kabeya, senior strategist at Daiwa Securities in Tokyo.
Hit by the drop in U.S. 10-year yields and the general concern over global growth it reflects, the dollar fell more than half a percent against the yen to as low as 118.65 yen JPY=. It was also marginally lower against the Swiss franc, at 1.00655 francs CHF=.
For the moment, that has done little to dent the conviction of banks that the dollar will continue to rise this year.
"I would be a bit cautious about extrapolating too much so early in the year," said CIBC's Stretch. "This dip in risk appetite is likely to be temporary, and we should see the dollar recover against the yen and expect the euro to head lower."
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IMF - Within the next few years, the U.S. economy is expected to enter its longest expansion in recorded history. The Tax Cuts and Jobs Act and the approved increase in spending are providing a significant boost to the economy. We forecast growth of close to 3 percent this year but falling from that level over the medium-term. In my discussions with Secretary Mnuchin he was clear that he regards our medium-term outlook as too pessimistic. Frankly, I hope he is right. That would be good for both the U.S. and the world economy.
IMF - The near-term outlook for the U.S. economy is one of strong growth and job creation. Unemployment is already near levels not seen since the late 1960s and growth is set to accelerate, aided by a near-term fiscal stimulus, a welcome recovery of private investment, and supportive financial conditions. These positive outturns have supported, and been reinforced by, a favorable external environment with a broad-based pick up in global activity. Next year, the U.S. economy is expected to mark the longest expansion in its recorded history. The balance of evidence suggests that the U.S. economy is beyond full employment.
U.S. FRB - Industrial production edged down 0.1 percent in May after rising 0.9 percent in April. Manufacturing production fell 0.7 percent in May, largely because truck assemblies were disrupted by a major fire at a parts supplier. Excluding motor vehicles and parts, factory output moved down 0.2 percent. The index for mining rose 1.8 percent, its fourth consecutive month of growth; the output of utilities moved up 1.1 percent. At 107.3 percent of its 2012 average, total industrial production was 3.5 percent higher in May than it was a year earlier. Capacity utilization for the industrial sector decreased 0.2 percentage point in May to 77.9 percent, a rate that is 1.9 percentage points below its long-run (1972–2017) average.
IMF - South Africa’s potential is significant, yet growth over the past five years has not benefitted from the global recovery. The economy is globally positioned, sophisticated, and diversified, and several sectors—agribusiness, mining, manufacturing, and services—have capacity for expansion. Combined with strong institutions and a young workforce, opportunities are vast. However, several constraints have held growth back. Policy uncertainty and a regulatory environment not conducive to private investment have resulted in GDP growth rates that have not kept up with those of population growth, reducing income per capita, and hurting disproportionately the poor.