Spike in Risk Avoidance Hammers Stocks and Commodities, Lifts Dollar

April 19, 2010

The Japanese Nikkei slumped 1.7% and closed below 11K for the first time since March 29.  Stocks also dropped 5.4% in China, 2.1% in Hong Kong, 3.2% in Taiwan, 1.7% in South Korea 1.5% in Singapore, 1.9% in the Philippines, 1.4% in Thailand and Australia, 1.3% in Indonesia, and 1.2% in India.  The Paris Cac, British Ftse, and German Dax have traded down 0.6%, 0.5%, and 0.4%.  The Greek ASE index has lost 2.8%.

The dollar has risen 1.2% against sterling, 0.8% relative to the Australian dollar, and 0.7% against the Swiss franc and Canadian dollar, which is at 1.0211, versus a recent peak of 0.9949 on April 14.  The dollar gained 0.6% overnight against the euro and 0.3% versus the kiwi, but it is 0.2% softer against the yen, another beneficiary of the resurgent flight to safety.

Oil continued to retreat sharply, falling 2.4% to $81.26 per barrel.  Gold eased 0.7% to $1128.4 per troy ounce.

Ten-year Japanese Government Bond yields (JGBs) slid 3 basis points.  Bunds eased one basis point.

Investors have many new and old worries.

  • The fraud allegation against Goldman Sachs by the SEC has elicited responses by regulators in Germany and Britain against that company and revived concern about the global financial system.
  • Europe’s air travel lock-down continues.  Scientists are unsure how long the Icelandic volcano will erupt, and economists warn about damage to Europe’s fragile recovery.
  • A YouGov poll in Britain showing the Liberal Democrats leading with 33% to the Tories 32% and Labour’s 26% support raises the likelihood of a hung parliament after the May 6 election.
  • The Chinese government’s steps to cool down the property market depressed the Shanghai Property Index by another 1.5%.
  • Fear persists that a last-minute hitch may deprive Greece of bail-out money or that Greece’s debt problems will spread to other euro area peripherals.  The Greek-German 10-year spread widened to 455 basis points, while Portugal’s premium increased to 146 bps.  At best, an aid package for Greece is seen buying some time but not allowing halting the rising trend of that country’s sky-high debt:GDP ratio.

Construction output in Euroland sank 3.3% in February on top of declines of 0.9% in January, 1.6% in December, and 1.1% in November.  Output was 15.2% lower than a year earlier compared to an on-year drop of 6.6% in the fourth quarter of 2009.

Japanese consumer confidence provided a rare bit of good news today with an increase to 40.9 in March from 39.8 in February and 37.6 in December.  The latest reading eclipsed scores of 40.5 last September and October and was the highest since October 2007.

Britain’s Rightmove house price index increased 2.6% in April and accelerated to a 12-month 6.0% rate of rise from 5.3% in March.

Spanish house prices slumped 1.3% last quarter and by 4.5% from a year earlier.

Producer prices in Finland rose 0.3% last month and 2.9% from a year earlier.  Austria’s PPI climbed 0.5% in February but was 0.7% lower than a year earlier.

The Filipino balance of payments swung back to a surplus of $255 million last month.  A $125 million deficit in February had followed surpluses of $1.23 billion in January, $1.22 billion in December, and $5.3 billion in full-2009.

The U.S. index of leading economic indicators gets released today, as does Canada’s monthly report on international security transactions.  Evans and Duke of the Fed have speaking engagements.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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