Slump in Japanese Equities

July 16, 2010

A 2.9% plunge in the Nikkei, its worst session in nearly six weeks, led a difficult day for Pacific Rim equities.  Weakness in stocks reflected yesterday’s poor indications of U.S. manufacturing and a disappointing earnings report from Google.  Stocks fell by 0.8% in South Korea, 0.7% in the Philippines, and 0.5% in New Zealand, Australian, Taiwan and Singapore.  Not all bourses in Asia fell, however; small gains were made in Indonesia, India, Singapore and China.

A record low 0.58% yield on two-year Treasuries also reflects mounting concern about the U.S. recovery.  10-year British gilts fell two basis points, while their German and Japanese counterparts edged up a single basis point.

The dollar weakened 0.2% against the yen and euro and is closer to $1.3000.  Otherwise, the U.S. currency advanced against by 1.6% against the kiwi, 0.6% versus the Canadian dollar, 0.5% relative to sterling and the Australian dollar, and 0.1% against the Swiss franc and Chinese yuan.

News that the BP oil leak in the Gulf of Mexico has finally been capped was accompanied by a 0.2% uptick in oil prices to $76.77 per barrel.  Gold eased 0.3% to $1205.10 per troy ounce.

Rhetoric about the euro has been mixed.  While the chief of the IMF warned of problematic growth prospects in the region, the French prime minister declared the sovereign debt crisis mostly overcome.

New Zealand consumer price inflation slowed in the second quarter, posting a 0.3% quarterly rise after +0.4% in the first quarter and a 1.8% on-year advance, down form 2.0% in the year to 1Q10.  Most analysts still expect a second rate hike from the Reserve Bank of New Zealand on the 29th of this month.

Japan’s tertiary index, a gauge of service sector activity, fell 0.9% in May and was only 1.1% greater than a year before.  This news adds to disappointing news of a mere 0.1% uptick in industrial production that same month.  The Bank of Japan’s monthly assessment was published today, reiterating Thursday’s post-rate announcement statement projecting moderate growth and slowly receding deflation.

Investors are questioning China’s newfound commitment to currency policy flexibility amid signs of cooling growth in China and the world economy.  The yuan is unchanged from its value last Friday against the dollar.

Euroland posted its first seasonally adjusted trade deficit of 2010, a EUR 3.0 billion shortfall that reverses three-fourths of an accrued EUR 4.0 billion surplus over the first four months of the year.  On-month growth of 4.2% in imports outpaced a 1.6% increase in exports.  The unadjusted trade balance was also in the red, a deficit of EUR 3.4 billion and some seven times greater than analysts were anticipating.  January-May exports and imports were 15.7% and 15.4% greater than a year earlier, and the year-to-date unadjusted deficit of EUR 6.8 billion was similar to EUR 7.2 billion posted a year earlier.

Consumer confidence in Turkey jumped 1.7% in June.  Turkey’s central bank left its interest rates unchanged at yesterday’s meeting (see review).

Italy recorded a EUR 1.96 billion trade deficit in May, more than twice as big as April’s shortfall.  The current account deficit widened about 16% to EUR 4.4 billion in the month.  Spanish industrial orders were 10.2% greater in May than a year earlier, but house prices in 2Q fell 0.9% on the quarter and by 3.5% from a year earlier.

The United States releases consumer prices, the Treasury capital flow figures, and the U. Michigan measure of early-July consumer confidence.  The Canadian index of leading economic indicators is due today.  The Bank of Mexico’s policy meeting today is expected to leave the 4.5% benchmark interest rate unchanged.   European stress test results will be published a week from today.

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

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