Risk Aversion Reigns as Investors Stay on Edge

June 24, 2010

Australian Prime Minister Rudd resigned.  His popularity had melted after proposing a draconian tax on mining activity.  Australian markets celebrated only briefly because the government remains in the Labour Party’s hands.  Former Deputy PM Gillard becomes Australia’s first woman prime minister.

The Fed’s statement yesterday acknowledged heightened external uncertainties.  News from Iran provided another source of anxiety.  Oil has slid 0.2%, and gold firmed 0.1%.

The yuan firmed 0.2% as a central bank advisor predicted a possible 3% rise against the dollar by yearend if the EUR/USD manages to stabilize.

But European equities were again rattled by sovereign debt concerns.  Stocks are down by about 2% in Greece and have fallen so far today by 1.2% in Spain, 0.9% in France, 0.6% in Britain, and 0.5% in Germany.  The Nikkei recovered only 0.1% and remains below 10K,  Stocks lost 1.7% in Thailand, 0.8% in Singapore, 0.6% in Hong Kong and 0.1% in China and Australia.

ECB President Trichet gave an extensive interview to an Italian newspaper.  His tried to be encouraging in describing efforts being taken to consolidate excessive budgets in the bloc and reiterated that the euro remains credible.

The yen benefited from risk aversion, climbing 0.6% against the dollar, which otherwise gained 0.3% against the euro, 0.9% versus the kiwi, 0.4% against the rand, 0.5% against the Aussie dollar, and 0.2% relative to the loonie.

Ten-year sovereign bond yields dropped by a further four basis points in Britain and Japan (now just 1.14%) and three basis points in Germany.

The Hong Kong Monetary Authority as always matched yesterday’s FOMC decision.  The HKMA key base rate was held steady at 0.5%.

But Taiwan’s central bank surprised analysts with a benchmark interest rate increase of 12.5 basis points to 1.375%.

Japanese corporate service prices dipped 0.1% last month but posted a smaller 12-month decline of 0.8% after falling 1.1% in the year to April.  The CSPI had dropped 2.7% on average in 2009.

Japan’s customs trade surplus of JPY 324 billion in May was only 58% as large as anticipated although 15.3% greater than in May 2009.  Export volumes recorded on-year growth of 31.9%, down from 39.5% in the year to April and 43.7% in the year to 1Q10. 

Real GDP in New Zealand grew 0.6% last quarter, down from a 0.9% gain in the final quarter of 2009.  But on-year GDP growth was 1.9%, a five percentage point favorable swing from minus 3.1% in the year to 1Q09.  A 1.9% rise last quarter in government expenditures gave significant support to GDP, while personal consumption edged just 0.2% higher.

South Africa’s current account deficit widened sharply as expected to 4.6% of GDP last quarter from a 4-1/2 year low of 2.9% in 4Q09.  South African domestic producer price inflation accelerated to 6.8% in May from 5.5% in April, 3.7% in March and 0.7% last December.

Hong Kong posted a HKD 25.1 billion trade deficit in May as on-year import growth of 29.7% outpaced the 24.4% rise of exports.

Turkish capacity usage rebounded less than anticipated to 72.7% in June from 70.4% in May.

Consumer spending in France rebounded with a rise of 0.7% in May after dropping 1.3% in April, and such posted on-year growth of 1.9%.

Euroland industrial orders rose 0.9% in April on top of a 5.1% leap in March.  They were 22.1% greater than a year earlier, having climbed by 7.4% annualized in 4Q09 and 16.3% at an annualized rate in 1Q10.  April’s level surpassed the 1Q mean by 5.1%.  April’s overall gain masked declines of 5.4% in Greek orders and 5.3% in Spanish orders.  The French component fell 3.4%, but those for the Netherlands, Germany and Italy respectively advanced 6.2%, 3.3%, and 5.9%.

Italian retail sales dipped 0.3% in April.  Belgian business sentiment worsened 2.8 points to minus 7.7 in June.

In Eastern Europe, Czech business and consumer sentiment respectively dipped two-tenths and rose 3.5 points in June. Hungarian retail sales in April were a greater-than-anticipated 5% lower than a year earlier.  Poland reported a 3.1% rise of retail sales last month but a high jobless rate of 11.9%. 

Scheduled U.S. data today include the Kansas City Fed index, durable goods orders, and weekly jobless claims.

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

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