Equity markets retreated in Europe and Asia on Tuesday with declines across most regional benchmarks corresponding to increases in gold and U.S. and German treasury-futures prices. The trend suggests that sentiment has shifted to risk-off for the near term. Meanwhile, the yen reached the highest level versus the dollar in more than a year, despite ongoing easing efforts by the Bank of Japan. Meanwhile, International Monetary Fund Managing Director Christine Lagarde said in an interview that global growth has potentially entered a “new mediocre” phase, a view the markets seem to share.
U.S. to crack down on inversions. On Monday, the U.S. Treasury Department unveiled new rules regarding taxation of companies operating domestically but headquartered abroad. The action, which target so-called “tax-inversion” mergers, raises doubts about the Pfizer and Allergan transaction, which has a combined value of more than $150 billion, and that would shift Pfizer’s headquarters from New York to Ireland. A clause in the merger agreement between the pharmaceutical companies allows either party to withdraw in the event of detrimental regulatory changes.
Losses related to Brazilian political scandal continue to pile up. On Monday Petroleo Brasileiro, or Petrobras, announced a writedown of more than $2 billion resulting from the ongoing political scandal that has mushroomed into a national crisis in Brazil. The announcement came with outside auditors reportedly completing an investigation into losses at Centrais Eletricas Brasileiras related to fraudulent third-party contracts, primarily involving construction. Separately, Brazilian Attorney General Jose Eduardo Cardozo on Monday told congress that current impeachment proceedings against President Dilma Rousseff are unconstitutional. Cardozo is a Rousseff political appointee.
German factory orders slow. In a surprise to economists, new factory orders in Germany declined in February, according to data released on Tuesday by the Federal Ministry for Economic Affairs and Energy. The headline index declined by 1.2 percent versus the January reading and consensus forecasts, for an expansion of 0.2 percent. The primary catalysts were exports, with new orders from abroad declining by 2.7 percent for the month and orders from within the common currency zone falling 3.7 percent. The news came on the same day Markit purchasing manager indices also registered below-consensus forecasts, with the aggregate Eurozone composite index at 53.1 for March versus a flash 53.7 reading.
India cuts rates. The Central Bank of India announced a rate cut on Tuesday, lowering the benchmark lending rate by 25 basis point to 6.5 percent. The move, which was widely anticipated by analysts, is the fifth reduction in the past 16 months. The central bank also raised its reverse-repo rate. Accommodative measures by policymakers at the CBI have been deployed as inflationary risks are perceived to remain manageable. in part due to declining global commodities costs.
