New Overnight Developments Abroad: Better-Than-Expected German Data

July 24, 2009

The dollar, sterling and yen are relatively soft today, and stocks have gained.

The dollar fell 0.8% against the Swiss franc, 0.7% against the euro and 0.6% against three commodity currencies (CAD, NZ$ and AUD).  Sterling is steady against the softer dollar, and the yen has edged only 0.1% higher against the U.S. currency.

Asian equities rallied for a ninth straight session.  Stocks closed up 1.6% in Japan, 4.8% in Vietnam, 2.5% in the Philippines, 1.2% in Indonesia, 1.0% in India, 2.0% in Singapore, 0.8% in Hong Kong, 1.5% in New Zealand and 0.6% in Australia.  In Europe, the British Ftse is 0.8% higher, and the German Dax and Paris Cac show gains of 0.7%.

The 10-year German bund yield is 3 basis points higher, while its Japanese counterpart is flat at 1.39%.

Gold settled back 0.5% to $950.50 per ounce.  Oil at $67.25 per barrel is holding onto yesterday’s sharp advance.

The German IFO Institute reported the highest industrial business climate reading since October, 87.3 in July versus 85.9 in June and 82.2 in March.  Current conditions improved 1.9 points, while expectations went up 0.9 to 90.4, which was even higher than its year-earlier level.  The business climate index for services also improved, rising to minus 3 from minus 5 in June and minus 10 in March.  German real construction orders fell 4.6% in the year to May.

Germany’s flash PMI readings were also much better than assumed.  The composite index jumped 4.9 points to an 11-month high of 48.9.  Manufacturing rose 4.3 points to a 10-month high of 45.2, while services advanced 3.2 points to 48.4, which also was at a 10-month high.

Euroland’s Flash composite PMI rose 2.2 points to 46.8, best in ten months, with manufacturing rising 3.4 points to 46.0 and services gaining 0.9 points to 45.6.

The French composite PMI fell to a two-month low of 47.2 from 47.8, as a 1.7-point drop in services to 45.5 outweighed a 2-point improvement in manufacturing to 47.9.  French consumer confidence was hurt by a weak labor market and fell unexpectedly to minus 39 in July from minus 37 in June and minus 42 in March. 

British real GDP contracted at an 0.8% rate in 2Q09 versus forecasts of minus 0.3%.  Construction tumbled 2.2% and 14.7% from a year earlier.  Manufacturing eased 0.3%, and services dropped by 0.6%.  Total GDP posted a drop from 2Q08 of 5.6%, greater than the first-quarter on-year decline of 4.9%.  While only a third as severe as in 1Q09, Britain’s recession remain surprisingly severe last quarter.  Sterling as a result failed to advance with other European currencies today.

Japan’s all-industry index, a monthly proxy for real GDP, went up 0.7% in May, less than half as much as assumed, and fell 9.9% from a year earlier after a 9.8% decline in the year to April.  Industrial production shot up 5.7% in May, but construction (-1.9%) and services (-0.1%) declined.

Spanish unemployment climbed to 17.9% last quarter from 17.4% in 1Q09.

Hungarian retail sales fell 0.5% in May and 4.2% from May 2008.  Sales in January-May were 3.6% less than a year earlier.

Singapore industrial output dropped 9.3% in the year to June, almost 50% more than projected.  Private home prices fell 4.7% last quarter.

South Korea, by contrast, reported better-than-expected second-quarter growth of 2.3%, the strongest gain since 4Q03, following a 0.1% uptick in 1Q.

Stock and bond transactions in Japan generated a small Y 73 billion inflow last week, down from Y 654 billion in the week of July 11.

In the U.S., the final U. Michigan consumer sentiment reading gets released today.  Bernanke and Geithner testify today on financial regulation.  Colombia will make an interest rate announcement but is not expected to change its key rate.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.

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