Continuing Worries About Euro Area Sovereign Debt

November 15, 2010

The dollar has recovered another 0.5% against the euro and yen, 0.4% versus the Swiss franc and sterling, 0.2% against the kiwi and Canadian dollar, and 0.1% against the Chinese yuan.  The Aussie dollar bucked this trend with a 0.1% uptick against the greenback.

Stocks were mixed in the Pacific Rim.  Equities climbed 1.1% in Japan, 1.5% in the Philippines, 1.0% in Thailand, 0.8% in India, 0.7% in China and 0.3% in South Korea but fell by 0.9% in Taiwan, 0.8% in Hong Kong, 0.5% in Singapore and 0.3% in Indonesia.  European stocks show minuscule changes at the start of this new week.

Long-term sovereign debt yields continue to firm in defiance of the intent of quantitative easing.  10-year yields rose 0.6 basis points in Japan, 5 bps in Germany and 3 bps in Britain.  Treasury yield futures also indicate a further rise in rates.

Oil prices rose 0.8% to $85.53 per barrel.  Gold prices edged up 0.1% but at $1367.20 per ounce remain over $50 below last week’s record peak.

Japanese GDP advanced 3.9% at an annualized rate in the third quarter, beating expectations by about one and a half times.  On-year growth advanced to 4.4% from 2.7% in the year to 2Q10.  GDP had contracted 5.1% in the prior year to 3Q09.  Last quarter’s growth was paced by a 4.7% annualized jump in personal consumption, which enhanced GDP by 2.7 percentage points.  Residential and non-residential investment, net exports, and inventories each made positive contributions to the growth of GDP.  The GDP and personal consumption price deflators respectively posted on-year drops of 2.0% and 1.9% in the year to 3Q10.

Some other data point to an abrupt slowdown of Japanese growth in the fourth quarter.  Industrial production, for instance, recorded a fourth straight decline in September according to revised data.  The drop that month was 1.6%, and the cumulative decrease since May was 3.3%.  But Tokyo condominium sales were 9.8% greater than a year earlier in October.

Australian auto sales fell 0.6% in October, shaving the 12-month rate of increase to 3.3% from 8.6% in September and 10.5% in August.  Mortgage lending firmed 0.6% in September.

New Zealand’s PSI index, a gauge of service-sector activity, slid back to 52.0 in October after rising to 54.9 in September from 51.8 in August and 51.1 in July.  New Zealand retail sales rose 1.6% in September according to a different release.

South Korean import prices fell 0.9% on month but rose 8.1% on year in October.  Export prices dropped 1.7% but firmed 1.0% on year.

Wholesale prices in India recorded an 8.6% advance in the year to October.

Irish officials were dismissive of rumors that they are in talks to secure aid from the EU.  Investors remain unconvinced.  Revised Euroland figures on public finances in calendar 2009 put the deficit/GDP and debt/GDP ratios at negative 6.3%  and +79.2%.  The German ratios were minus 3.0% and +73.4%.  Greece (minus 15.4% and +126.8%) topped the list in both cases.  Greece’s finance minister stands by the prediction that the deficit in 2010 will be just 9.4% of GDP despite the upward revision of the 2009 deficit from 13.6% reported earlier.

Euroland’s trade balance showed a seasonally adjusted EUR 2.4 billion surplus in September, as both exports and imports dropped below August levels.  There had been a EUR 1.7 billion deficit in August.  The unadjusted trade position also swung from an August deficit (5.0 billion) to a September surplus of EUR 2.9 billion.  Exports and imports were 22.2% and 21.0% greater than in September 2009.

France’s current account deficit widened marginally to EUR 4.4 billion in September from EUR 4.3 billion in August. Italy’s trade deficit widened to EUR 3.2 billion in September from EUR 3.0 billion in August and EUR 1.0 billion in September 2009.  Norway’s trade surplus narrowed to NOK 23.4 billion in October from NOK 26.4 billion a year earlier.

The British Rightmove house price index recorded the biggest monthly drop since late 2007, a 3.2% plunge in November, which more than halved the 12-month pace of rise to 1.3%.

The Swiss PPI/import price index fell 0.4% in October with an unchanged 0.3% on-year comparison.  These results were lower than forecast.

Danish producer prices firmed 0.3% in October and accelerated in on-year terms to 6.2% from 5.5% in September.  Czech producer prices were unchanged on month and 2.6% higher on year in October. Finnish consumer prices rose 0.4% on month and 2.3% on year last month.

Italy edged closer to a vote of no confidence in Prime Minister Berlusconi and early elections as one cabinet member and three other officials resigned.  The disruption could impede fiscal consolidation.  Italy’s deficit last year was only 5.3% of GDP, but the debt/GDP ratio of 116.0% was only exceeded by Greece’s.

Scheduled U.S. data feature retail sales and also include business inventories and the New York Fed manufacturing index.  Canadian auto sales also get reported today.  Several ECB officials will be speaking publicly.

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

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