Market Pessimism Shifts Back to Europe

September 23, 2010

Preliminary euro area PMI readings for September were weaker than anticipated, and peripheral bond yield spreads are wider amid rising concern about the region’s banks.

The dollar advanced 1.3% against the kiwi after a weak New Zealand GDP report.  The greenback also gained 0.6% against the Australian dollar, 0.5% versus the euro, 0.2% against the Canadian dollar and 0.1% vis-a-vis the Swiss franc.  Dollar/yen and dollar/yuan are unchanged, and sterling edged 0.2% higher against the dollar.

Equities are down 0.9% in France, 0.7% in Britain, 0.6% in Germany, and 0.4% in India, and Singapore.  Japanese markets were closed for the autumn equinox holiday.  Stocks firmed 0.2% in Australia and Hong Kong and by 0.3% in China and South Korea.

The ten-year German Bund yield fell by an additional six basis points to 2.29% and is 18 bps lower than its close on September 20.  The British gilt yield is 2 bps lower.

Oil prices slid 0.8% to $74.13 per barrel.  Gold edged up 0.1% to $1293.0 per ounce.

Mostly disappointing preliminary purchasing manager survey readings for September were released covering Euroland, Germany, and France.

  • The composite Euroland PMI fell 2.4 points to to 53.8, lowest since 53.7 in February.  The lowest reading in March-August had been 55.9 in March.  Activity faltered sharply at the end of 3Q in both manufacturing (to 53.6 from 55.1) and services (to 53.6 from 55.9).  Factory output hit an 11-month low.  Growth in 4Q10 will be halved or worse.  Analysts were looking for readings of more than 54.5 in manufacturing and about 55.5 in services.
  • Factory output in Germany weakened to 55.0 in September from 60.5 in August and 63.1 in July.  Weakening export market demand has trickled down to production in Germany.  The overall manufacturing PMI reading of 55.3 was 2.9 points lower than August’s 58.2 and 5.9 points less than 61.2 in July.  All readings since February had been higher than 57.  Germany’s service-sector PMI, which had risen to a three-year high of 57.2 in August, declined to a 7-month low of 54.6 in September.  The composite German PMI of 54.8 was down from 58.4 in August and 59.3 in July and constituted an 8-month low.
  • The manufacturing PMI in France provided about the only bright spot, climbing to a 4-month high of 55.4 from 55.1 in August.  Services fell 1.6 points and to a 6-month low but, at 58.8, signaled continuing resilience.  The French composite PMI of 58.5 was down from 59.5 in August and also at a 6-month low.
  • The gap between Euroland’s composite score of 53.8 and those of 58.5 in France and 54.8 in Germany highlight risks of a double-dip recession in other Euroland members.  Jobs are contracting at a faster pace in many countries in the region.

The French statistical agency, INSEE, reported a one-point improvement in business sentiment to 98, which isn’t too far from this index’s long-term average score of 100.  While the French economy remains stronger than most in Europe, President Sarkozy’s voter approval ratings are very depressed.

According to the British Bankers Association, mortgage approvals of 31,767 in August were at a 16-month low and below forecasts.

New Zealand GDP expanded only 0.2% last quarter, a third as much as in 1Q, and well below analyst forecasts of 0.5%.  The news depressed the kiwi.

Consumer prices in Singapore firmed 0.5% last month and were 3.3% higher than a year earlier.  That’s well above the inflation pace earlier this year.

Taiwanese industrial production in August exceeded year-earlier levels by 23.4%.

Dutch GDP grew 1.0% in 2Q according to revised figures and was 2.2% greater than in 2Q09.

Scheduled U.S. data today include existing home sales, the index of leading economic indicators, and jobless insurance claims.  The central bank of the Czech Republic has a policy meeting today.

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

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