Market Squeezing Japan

August 24, 2010

The Nikkei-225 closed at 8,995, the first sub-9000 closing since May 6, 2009.  The daily drop of 1.3% brought the cumulative decline since April 5, 2010 to 20.7%, thus qualifying as an official bear market.  The yen advanced 0.9% against the dollar, touching a 15-year high of 84.15.  The yen also hit a 9-year high of 106.1 per euro.  Japanese Finance Minister Noda reiterated the G-7’s opposition to disorderly foreign exchange rate movements, which focuses upon market conditions rather than particular levels.  Traders do not expect the Ministry of Finance to sell yen and are calling the bluff of officials.  The 10-year JGB yield slid another two basis points to 0.93%.

Equities also fell by 1.1% in Australian and Hong Kong, 0.5% in Thailand and India, and 0.4% in Indonesia, Taiwan and South Korea.  In Europe, the Paris Cac, British Ftse, and German Dax have weakened by 1.3%, 1.1%, and 1.0%. 

The dollar has strengthened on risk aversion-related demand by 0.8% against sterling and the Australian dollar, 0.5% against the Canadian dollar, New Zealand dollar and euro and 0.4% against the Swiss franc.

Ten-year German bund and British gilt yields fell five basis points to record lows.  Nobel prize winner Joseph Stiglitz warned that Europe may be heading to a double-dip recession because of excessive fiscal restraint.  Bank of England policymaker Martin Weale also spoke of the danger of a double-dip recession in Britain.

Oil and gold prices dropped 1.2% and 0.7% to $72.24 per barrel and $1219.80 per ounce.

Industrial orders in the euro area jumped 2.5% in June on top of May’s 4.1% leap.  Such were 22.6% greater than in June 2006.  Orders for capital goods rose 4.7% in May and another 5.3% in June.  The level of total orders was 3.0% greater than the 2Q10 average.  Orders in the second quarter advanced 35.9% annualized from the first-quarter mean.

Germany released details of GDP growth last quarter.  Real GDP expanded 2.2% (not annualized).  Consumption grew 0.6% and made a 0.3 percentage point (ppt) contribution to the GDP growth rate.  These were somewhat bigger than anticipated.  Investment soared 4.7%, with machinery and equipment up 4.4% and construction climbing 5.2%.  Investment enhanced GDP growth by 1.2 ppts, and net exports contributed another 0.8 ppts.  On-year GDP growth doubled to 4.1% from 2.1% in the year to 1Q10.  GDP had dropped 6.8% in the previous statement year to 2Q09.  A member of the German Council of Economic Advisors warned that growth would be slower in the second half of this year.

Germany’s Federal government deficit amounted to 3.5% of GDP in 1H10.

British mortgage approvals totaled 33,698 in July with a value of Gbp 4.975 billion according to figures reported by the British Bankers Association.  Both figures were at five-month lows.

Czech business sentiment rose a tenth of a point to 11.7 in August, but consumer confidence sagged 3.5 points to minus 11.8.  Polish retail sales grew 3.2% in July, exceeding expectations.  Poland’s central bank is not expected to announce any change in its 3.5% benchmark interest rate after today’s meeting.  Central banks in Hungary and Israel yesterday announced no change in their policy rates.

Swedish jobs posted a smaller 0.6% on-year decline in 2Q10 after dropping 1.5% in the year to 1Q10.

Real GDP in South Africa decelerated more sharply than expected to an annualized 3.2% pace last quarter from 4.6% in the first quarter of 2010.  GDP was 3.0% higher than in 2Q09.

Scheduled North American data releases today include U.S. existing home sales and weekly chain store sales, plus Canadian retail sales.

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

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