A 7.3% plunge in Japan’s stock market spilled into Europe, overshadowing moderately better data on the Continent.
After the tumult in Japan, investors jumped quickly out of riskier assets. Spanish and Italian government bonds weakened, as did more-speculative currencies like the South African rand. Havens such as German government bonds and the Swiss franc gained. Gold also rose.
Before Thursday, the Nikkei had risen 50% in 2013 and 10% in less than two weeks.
(…) Investors should take note. Share prices, relative to expected earnings, have risen by 50 per cent in the past year for the Nikkei 225 and by a third for the Topix to 20 and 16, just a little below long-run averages. For a promising but as yet unproven recovery in a country hoping to emerge from two decades of decline, that is enough for now. Profit-taking was due, and the chill provided by the idea of a less easy Fed and slowing growth in China was a good spur. After all, if those come to pass, Japan’s prospects will indeed look very different.
The Nikkei: a market abducted by retail
Blame Bernanke, China or the BoJ but this Nikkei rout has apparently been led by the little guys. From the FT:
Over the past few weeks, individual investors’ share of trading had risen steadily, to a record 35 per cent last week. Brokers say their share was almost certainly higher over the past few days, judging by huge volumes in popular stocks such as Fast Retailing, owner of Uniqlo, and Mitsubishi Motors [...]
The scale of the fall [says Stefan Worrall, director of equity sales at Credit Suisse in Tokyo], “just shows the extent to which this market has become abducted by retail.”
Fed’s Varied Voices Leave Market Guessing Bernanke said the Fed could start reducing bond buying “in the next few meetings” but warned against premature action, amid conflicting messages that roiled markets.
The Fed could take a first step toward reducing the program at one of its “next few meetings,” Mr. Bernanke said, but he cautioned that he was reluctant to move prematurely or aggressively.
The comments, given at a congressional hearing Wednesday, gave markets a dose of clarity for a few hours, though a subsequent release of minutes from the Fed’s April 30-May 1 Fed policy meeting added to investor anxiety about the Fed’s plans. The minutes disclosed that some officials were prepared to start pulling back the program as early as the Fed’s next meeting in June, though the group as a whole, too, expressed hesitance. (…)
“We are trying to make an assessment of whether or not we have seen real and sustainable progress in the labor-market outlook,” Mr. Bernanke said. (…)
“A premature tightening [would] carry a substantial risk of slowing or ending the economic recovery,” Mr. Bernanke said.
(…) In Mr Dudley’s words, “once you are caught in deflation, it is very hard to get out. Thus, policymakers need to put considerable weight on this risk and conduct monetary policy with sufficient aggressiveness to ensure that they avoid such an outcome”. He also argued that the Fed made a mistake with its earlier “start-stop” approach to QE and “put too much emphasis, too early, on the exit”. The implication is that he does not want to do that again. (…)
After yesterday’s evidence, it is clear that the Fed’s decision on tapering will be “data determined”. But the relevant data include inflation reports as well as employment reports. The Fed is now missing both parts of its twin mandate in the same direction. This will complicate, and perhaps delay, the decision on when to start tapering QE.
Sales of foreclosed homes fell in April, and the number of properties on the market rose at the start of the spring selling season, suggesting further improvement in the housing market this year.
Existing-home sales inched up 0.6% in April from a month earlier to a seasonally adjusted annual rate of 4.97 million, the National Association of Realtors said Wednesday. The results were the highest since November 2009 and were 9.7% above the same month a year earlier.
The report brought several new signs that the housing market is well on its way to recovery from the housing bust. Homes sold in April were on the market for a median of 46 days, down from 83 a year earlier. The median sale price in April was $192,800, up 11% from a year earlier, the highest since August 2008. Sales of homes under $100,000, including many foreclosures, were down nearly 10% from a year earlier, while sales of properties for more than $750,000 were up by more than 40%.
The overall percentage of sales that were foreclosures and other distressed properties fell to 18%, the lowest level since the Realtors’ group began tracking the issue through surveys of agents in October 2008. (…)
The inventory of previously owned homes listed for sale at the end of April increased 11.9% to 2.16 million homes, but was still down 13.6% from year-ago levels.
From Toll Brothers conf. call:
Mr. Yearley added that Toll raised prices by about $26,000 per home on average during the quarter, noting that “in many markets as prices increase, a sense of urgency takes hold and demand continues to rise.”
That’s a 5% price rise on Toll’s average selling price.
About 22 million Americans may lack enough home equity to move, keeping property listings tight and limiting sales as the housing market recovers, Zillow Inc. said.
Forty-four percent of homeowners with mortgages owed more than their properties are worth or had less than 20 percent equity in the first quarter, the Seattle-based real estate data company said in a report today. Those people probably are locked in to their residences, because listing a house and purchasing a new one generally requires equity of at least 20 percent to meet costs such as a down payment and broker fees, Zillow said.
The people who cannot sell are contributing to a dearth of home inventory on the market, which is restraining deals in the key U.S. spring selling season. There were 2.16 million homes available last month, the fewest for any April since 2001, the National Association of Realtors reported yesterday. While the low supply is helping to fuel price gains and lift home equity, values have to climb further to ease the shortage, Zillow said. (…)
More than 13 million homeowners were underwater in the first quarter, equal to about 25.4 percent of those with a mortgage, down from 13.8 million at the end of 2012, Zillow said. Another 9 million people had less than 20 percent equity. (…)
About 1.4 million homeowners will regain positive equity by the first quarter of 2014, according to a Zillow projection.
U.S. auto makers are accelerating production lines and, in some cases, even canceling the North American industry’s traditional summer factory shutdowns to pump out more vehicles and meet strong demand.
General Motors Co., Ford Motor Co. and Chrysler Group LLC are running their factories at full tilt amid continued sales increases. Annualized U.S. automotive sales reached a 14.9 million vehicle pace in April. Auto executives expect U.S. sales for all of 2013 to reach 15 million vehicles, above last year’s 14.5 million mark.
Detroit brands have made strong market share gains this year. They held 45.9.% of the U.S. market year-to-date through April, exceeding the 44.9% share of Japanese and South Korean auto makers. A year ago, the U.S. was at 44.4% while Asian auto makers had 46.3%.
The chart, courtesy of Haver Analytics, shows the flattening in demand in 2013…
Preliminary PMI numbers highlight sluggish economy
(…) Most alarming in the PMI was the fact that declines in the gauges of new orders and employment appeared to be driven by a slump in domestic demand rather than external weakness. (…)
Germany Survey Shows Export Risks Are Companies’ Biggest Concern
Forty-one percent of companies polled by the industry and trade chambers’ DIHK umbrella organization said they worry most about export demand. While 30 percent of the companies expect their sales abroad to grow, 13 percent of respondents expect exports to decline.
Markit’s May PMI for Germany:
May data indicated a stabilisation of German private sector business activity, with both manufacturing and services output little-changed
since the previous month. At 49.9, the seasonally adjusted Markit Flash Germany Composite Output Index improved from a five-month low of
49.2 in April, but remained weaker than its long-run average (52.9). The latest index reading for manufacturing production (50.2) was fractionally higher than that recorded for services activity (49.8), which reversed the trend seen in April.
The overall stabilisation in output was partly achieved through work on outstanding projects, as total new business volumes decreased for the third month running. Across the German private sector as a whole, backlogs of work dropped at the fastest pace so far in 2013, largely reflecting a marked decline at service providers. New business
received in the service economy fell at the steepest rate since last September, while manufacturing new order volumes were broadly unchanged over the month. Subdued demand from foreign markets
continued nonetheless in the manufacturing sector, as highlighted by a decrease in new export work for the third successive month.