Market Worried About Euroland

July 20, 2010

Ahead of Friday’s publication of European bank stress test results, the German Dax, Paris Cac, Spanish IBEX, and British Ftse have traded 1.1%, 1.2%, 0.7%, and 0.6% lower.  In the Pacific Rim, the Japanese Nikkei reopened after Monday’s Marine Day holiday with a loss of 1.2% to 9,300.  Stocks fell 0.7% in Thailand and 0.3% in India, but they rose by 1.0% in Australia and New Zealand, 1.8% in Sri Lanka, and 2.2% in China where speculation has arisen that the government will soon lift its foot off the economic brakes.

The euro early touched $1.3031, a two-month high, but now shows a net loss of 0.3% and has dipped marginally below $1.29. The dollar is also up 0.3% against sterling and 0.1% against the yen, which was rattled last Friday by fear of intervention.  The Aussie dollar and kiwi gained 0.8% and 0.7% against the U.S. currency, while the loonie edged up 0.1% ahead of the Bank of Canada rate announcement due at 13:00 GMT.  The Swissy (+0.3% versus the dollar) strengthened against other European currencies.

Ten-year British gilt and German bund yields are two basis points softer.  The 1.1% 10-year JGB is steady.

Gold and oil prices slid 0.3% and 0.1% to $1178.30 per ounce and $76.46 per barrel.

Greece, Spain, and Ireland successfully sold sovereign debt, but investors remain nervous.  The ECB allotted EUR 201.3 billion at 1.0% in its weekly refinancing tender.

German producer price inflation accelerated to 1.7% in June from 0.9% in May and 0.6% in April.  The 0.6% on-month increase was three times greater than forecast.

Britain reported bigger-than-anticipated government deficits in June.  The PSNB was Gbp 14.5 billion, and the PSNCR totaled Gbp 20.7 billion.  The current budget deficit of Gbp 12.6 billion surpassed that of Gbp 11.9 billion in June 2009.

The quarterly CBI of British industrial trends revealed a better-than-expected overall balance of +24, but manufacturers predict that the strong growth rate of manufacturing output will slow in the coming three months.

British M4 was unchanged in June and up 3.0% on year.  On-year growth in M4 lending of 2.4% was the lowest in at least 27 years.  According to other Bank of England data, mortgage approvals amounted to 48K, below’ May’s 51K total and forecasts of 52K.

Hungary’s government remains in a standoff with the IMF and EU over mandated fiscal austerity.  The forint has been falling in response.

Switzerland’s trade surplus more than doubled to Chf 1.77 billion in June, but real export and import volumes fell pretty sharply last month.

Spain’s trade deficit narrowed to EUR 4.2 billion in May from EUR 5.0 billion in April.

Dutch consumer confidence improved to minus 14 in July from minus 18 in June.  Consumer spending advanced 1.2% in May.

Italian industrial orders (3.2%) and sales (0.8%) outperformed expectations in May.

Minutes from this month’s Australian interest rate meeting revealed the decision not to change policy after six previous rate hikes of 25 basis points each since October was influenced by a desire to see the impact of the European stress test results.  Officials looks for on-trend Australian growth.

Japan’s index of leading economic indicators punched in at 98.6 in May, down from 101.7 in April and 101.9 in March.  The coincident index fell a tenth to 101.2.  Convenience store sales were 1.5% lower in June than a year earlier.

Hong Kong posted a 4.6% jobless rate last month.  Taiwanese export orders were 22.5% greater in June than a year before.

The Bank of Canada will likely announce a second 25-basis point rate hike this morning, following up on its first move made June 1.  The U.S. reports housing starts and building permits today, as well as weekly chain store sales. 

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

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