Bad News on Many Fronts

June 23, 2011

The Fed’s message — a dovish view on the economy, resignation that there’s not much else that policymakers can offer, uncertainty about how much time it will take for long-term balance sheet adjustments to be worked out, and considerable concern about long-term fiscal prospects —  was not received well.

Eurozone flash purchasing manager readings signal a very sharp loss of momentum between April and June especially in manufacturing but also services.

China’s manufacturing PMI score fell 1.5 points to an 11-month low of 50.1, suggesting that on-year growth in industrial production isn’t going to be stronger than 13%.

Greek Prime Minister Papandreou has back-pedaled on assuring the likelihood that parliament will agree to the austerity plan as soon as next week.  His new cabinet approved the measures.  The EU/ECB/IMF is holding out passage of austerity as an absolute pre-condition for the next tranche of aid to Greece.

ECB President Trichet spoke in very alarming terms about the risks that Europe’s debt crisis poses the the region’s major banks.

The British CBI’s monthly survey of retailers sank to a reading of minus 2% this month from +18% in May, +21% in April, and +56% a half year ago.  It was the first negative score since June 2010 and the weakest reading since August 2009.

U.S. equities fell during yesterday’s press conference.  Taking that cue, stocks dropped 1.0% in Thailand, 0.8% in Sri Lanka, 0.7% in Australia, 0.6% in Taiwan, 0.5% in Hong Kong, 0.4% in South Korea, and 0.3% in Malaysia and Japan.  Conditions worsened after Europe opened.  The Paris Cac, German Dax and British Ftse show losses so far of 1.1%, 1.0% and 0.9%.

Oil fell 1.9% to $93.56 per barrel overnight.  Gold is 0.8% softer at $1541.00 per troy ounce.

Little change has occurred in sovereign bond yields.  The German bund is off one basis points.  The JGB was unchanged at 1.12%, and the British gilt edged up a basis point.

The euro fell 0.9% against the dollar and also weakened on key crosses.  The U.S. currency advanced 0.5% against sterling and the Aussie dollar, 0.4% versus the yen, 0.2% relative to the Swiss franc, and 0.1% against the kiwi and yuan.  The Canadian currency is unchanged against its U.S. counterpart.

Australia’s index of leading economic indicators edged up 0.1% in April but remains 0.6% below its level last October.

Japanese stock and bond transactions generated a JPY 329 billion capital outflow last week following a JPY 721 billion outflow in the week of June 11.

Euroland’s preliminary reading on the composite purchasing managers index sank to a 20-month low of 53.6 in June from 55.8 in May, 57.8 in April and a first-quarter average of 57.6.  The 52.0 score in the manufacturing PMI was down from 54.6 in May and 58.0 in April and constituted an 18 month low.  Factory output hit a 21-month low.  Services lost momentum, too, printing at a six-month low of 54.2 after 56.0 in May and 57.2 in March.  The only silver lining is that input price inflation appears to be receding.  The region’s GDP rose 0.8% in the first quarter (not annualized), and April showed enough strength to produced a gain of around 0.6%.  However, June data suggest growth of 0.4% and falling at the cusp between the second and third quarters.

The German manufacturing PMI fell 2.8 points to 54.9 in June (a 17-month low) and was 7.1 points lower than the 62.0 reading for April.  Analysts were expecting a reading of 56.7, and the much greater-than-forecast loss of momentum on softer export demand overshadowed the improved services PMI, which rose 2.1 points to a 3-month high of 58.3.  The German composite PMI actually rose 0.2 points to a decent 57.3, but factory output printed at 55.5, down from 59.0 in May and scores of more than 60 in each of the five previous months.

The situation in France is even more worrisome.  The services PMI there sank to a six-month low of 56.7 in June from 62.4 in April and 62.5 in May.  Factory output touched a 23-month low of 52.4 after having topped off at 61.1 as recently as April.  The overall manufacturing PMI was at a 22-month low of 52.5 after 54.9 in May and 57.5 in April.

Consumer confidence in Italy slid to 105.8 in June from 106.5 in May.

Ireland and The Netherlands reported good but alas dated first-quarter GDP figures.  Irish GDP increased 1.3% last quarter, reversing a sharp decline in 4Q10 and thus leaving the level just 0.1% higher than in the first quarter of 2010.  Dutch GDP went up 0.9% in 1Q11, led by business investment and government spending, and was 2.8% higher than a year earlier. 

Swedish producer prices unexpectedly dropped 0.9% on month in May, cutting the 12-month rate of increase almost in half to just 0.9%.

The Swiss trade surplus of CHF 3.3 billion in May was 2.3 times wider than in April.

According to data released by the British Bankers Association, May mortgage approvals in that economy of 30,509 slightly exceeded expectations and were 2.6% greater than in April.  Net mortgage lending surpassed its year-earlier level by 2.0%.

Icelandic wages increased 1.2% and 5.3% on year in May.

Hong Kong’s current account surplus widened 56% on quarter in 1Q11.  Consumer price inflation in Singapore stabilized at 4.5% in May.  The Filipino current account surplus last quarter was 57% smaller than in the final quarter of 2010.

Central bank interest rate announcements are scheduled today in the Czech Republic and Turkey.  Neither is expected to embody a rate change.

The United States will be releasing figures later today on weekly jobless insurance claims and new home sales.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.

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