New Concerns about U.S. and Global Growth Prospects

July 7, 2010

Stocks fell 1.7% in Sri Lanka, 1.1% in Hong Kong, 0.8% in India, 0.6% in South Korea, and 0.5% in Australia.  Selling intensified in Europe, where the Paris Cac is trading 1.6% lower, the Spanish IBEX has lost 1.5%, and both the German Dax and British Ftse show losses of 1.3%.  A poorer-than-expected service sector U.S. PMI report yesterday was one catalyst for the sour mood, and European fiscal austerity is another.  Germany’s cabinet approved a EUR 81.6 billion package of spending cuts and higher taxes.

The return of risk aversion lifted the yen by 0.3% against the dollar, which otherwise has risen 0.6% against the Canadian and Australian dollars, 0.4% against the euro — which fell back through $1.2600 — and 0.3% against sterling and the kiwi.  Dollar/Swiss is steady, in contrast.

Ten-year yields on German bunds and British gilts slid two basis points, while that on JGBs firmed two basis points.

Gold and oil fell 0.6% and 0.1% to $1188.10 per ounce and $71.91 per barrel.

German industrial orders fell 0.5% in May, their first monthly drop of 2010, but were 24.4% higher than in May 2009.  April-May orders were 6.4% greater than the 1Q average level, nonetheless.  Both domestic demand and exports orders posted mild monthly declines, but a bright spot in the data as a 1.9% advance of domestic orders for capital goods, which tends to predict future trends in business investment spending.  Such orders were 4.3% greater in April-May than in 1Q.

The weekly ABC/Washington Post index of U.S. consumer confidence sagged a point in the latest release.

Euroland released revised first-quarter GDP data, which like the prior revision showed a quarterly 0.2% increase and a 0.6% gain from 1Q09.  Business investment and personal consumption fell by 1.2% and 0.1% on quarter, while stronger growth in imports of 2.8% than exports (2.1%) produced a 0.5 percentage point (ppt) drag on GDP growth.  Government spending ticked up 0.2%, reversing a drop of same amount in the fourth quarter, but a favorable swing in the inventory cycle enhanced GDP growth by 1.0 ppts.

French retail trade slid 0.6% in April.  The French trade deficit in May of EUR 5.5 billion surpassed analyst forecasts and April’s deficit of EUR 4.25 billion.  Exports and imports recorded significant monthly declines.  A deficit of EUR 45.8 billion accrued over the last twelve reported months.

Czech retail sales firmed 0.4% on month and 3.1% on year in May.  There was a CZK 12.3 billion Czech trade surplus in May.  Hungary experienced its sharpest monthly increase of industrial production since end-2006, a gain of 5.4% in May.  Output was also 13.7% greater than a year earlier.

Estonian consumer price inflation picked up to 3.5% in June from 3.0% in May.

Japanese reserves advanced $8.9 billion in June to $1.05 trillion, more than reversing a $5.6 billion drop in May. 

Australia’s Performance on Construction index fell from 53.2 in May to a ten-month low of 46.4 in June.  Interest-sensitive sectors are coping with 150 basis points of increase in the Official Cash Rate since October.  The rate was left at 4.5% yesterday, and the Reserve Bank indicated that current monetary policy settings will be appropriate in the near term in spite of projections of above-trend domestic growth and inflation near the upper end of the target range.

Canada’s IVEY-PMI will be reported today.  The Eastern United States continues to be gripped by a severe heat wave.  Areas around New York saw their hottest temperatures in nine years yesterday.

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

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