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Prospects Daily: Oil slide, China slowing, and Greek turmoil put pressures on stocks, U.S. consumer sentiment jumps to a near 8-year high, Brazilian retail sales beat expectations

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Financial Markets

A persistent rout in oil prices, slowdown in Chinese industrial production, and another sharp sell-off in Greek financial markets damped investors’ appetite for riskier assets and boosted demand for safe-haven government bonds.  Europe’s Stoxx 600 stock index fell 1.4% in afternoon trading, extending its weekly decline to 4.6%, as commodity producers posted the worst drop among all industry groups.  U.S. equities opened lower as well with the S&P 500 retreating 0.5% in morning trade, heading for the worst weekly decline in two months.  Meanwhile, U.S. treasuries continued to advance, with benchmark 10-year yield sliding 4 basis points (bps) to 2.12%, the lowest level October.  The yield has tightened 18 bps this week, biggest weekly drop since June 2012.

Financial turmoil in Greece continued on Friday as inconclusive elections had fueled fears the country may exit the currency’s bloc.  The yield on Greek 10-year government bonds climbed 9 basis points (bps) to 9.17%, having surged 194 bps this week, which is the largest weekly rise since the height of the euro-area debt crisis in May 2012.  The rout spread to Greek stocks with the country’s benchmark ASE Index heading for the biggest weekly slump since 1987.  The Greek stock gauge has declined 20% this week, extending this year’s loss to 29%, making it the worst performer in the world after Russia.

High Income Economies

Substantially exceeding expectations and reaching its highest level since January 2007, the preliminary reading of the Thomson Reuters - University of Michigan U.S. consumer sentiment index came in at 93.8 for December, higher than the final November reading of 88.8 and economists’ expectations of 89.5.  The jump reflected a notable increase by the consumer expectations sub-index, which surged up to a nearly eight-year high of 86.1 from 79.9 in November.  The current economic conditions sub-index also climbed from 102.7 in November to 105.7, its highest level since February 2007.

Meanwhile, U.S. producer prices dropped 0.2% (m/m) in November, offsetting the 0.2% rise in October.  Economists had expected prices to slip 0.1%.  The plunging crude price is expected to create a net benefit to the U.S. economy thanks to the cheaper petrol prices that have followed, and is weighing on inflation that may also allow the Federal Reserve to put off raising its overnight lending rate for the first time since the financial crisis.

Largely due to weak energy output, Eurozone industrial production grew 0.1% (m/m) in October, lower than economists’ forecast of a 0.2% climb and September’s revised 0.5% increase.  Increases in the production of intermediate goods, durable and non-durable consumer goods were partially offset by production declines of energy and capital goods.

Developing Economies

Latin America and the Caribbean

Raising for the third consecutive month and signaling a continued improvement in consumer sentiment, Brazil’s retail sales climbed 1.0% (m/m) in October, faster than economists’ forecast of a 0.5% increase and September's 0.4% rise.  Increasing for the second straight month, broad retail sales, which includes sales of vehicles and construction material, jumped 1.7% in October, faster than economists' expectation of a 1.3% increase, and much faster than September’s 0.6% increase.

Reflecting another decline in mining output, Mexican industrial production grew a less-than-expected 0.3% (m/m sa) in October, smaller than the 0.7% increase expected by economists, but better than the 0.1% fall in September.  On an annual basis, production rose 2.1% (y/y) in October, after a revised 2.9% increase in September.

South Asia

India’s industrial production fell 4.2% (y/y) in October, significantly missing economists’ expectations of a 2.5% increase, and more than reversing the revised 2.8% rise in September.  The decline was largely driven by a 7.6% plunge in manufacturing output.  Meanwhile, mining and electricity output grew 5.2% and 13.3%, respectively

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