Watching Cannes Summit and Data Releases

November 4, 2011

Market attention today will be split between several key data releases and the G20 scramble to stop the Greek debt bomb.  Investors also continue to react to yesterday’s rate cut by the ECB.

Meantime, changes in the dollar are generally modest, with upticks of 0.5% against the Swissie, 0.3% vesus the loonie, and 0.1% against the Aussie dollar and sterling but dips of 0.1% relative to the euro and yen and of 0.2% against the yuan.

Asian stocks rallied, with advances of 3.1% in Hong Kong, 3.4% in South Korea, 2.6% in Australia, 1.9% in Taiwan and Japan, 2.1% in Indonesia, 1.5% in The Philippines, 1.4% in Singapore, 1.0% in Malaysia and 0.7% in China.  These were catch-up moves following North American and European recoveries.  In Europe, the British Ftse and Paris Cac are up by a further 0.9% and 0.5%, but the German Dax has edged just 0.1% higher.

Oil shot up 2.8% to $94.81 per barrel, while gold eased 0.4% to $1758.80 per troy ounce.

The 10-year German bund yield is a basis point higher, while the JGB dipped a basis point and under 1.0% to 0.99%.

Euroland’s service and composite purchasing manager readings for October were revised below their flash indications of 47.2 each to 46.4 and 46.5.  The orders component in the services survey was below 50 (meaning declining activity) in every reporting country of the euro area, further that fourth-quarter GDP will contract at least 0.5%.

  • The composite PMI scores hit a 27-month low in Germany of 50.3, a 28-month low in Italy of 43.1, a 29-month low of 41.7 in Spain and a 30-month low of 45.6 in France.  It was France’s first sub-50 reading since July 2009 and the lowest one since April 2009.  France had been a pillar of Euroland growth in the first half of 2011 along with Germany but has now joined the members already in recession like Italy, Spain, and Greece. 
  • The service PMI readings in October were at 50.6 in Germany, 44.6 in France, 43.9 in Italy, and 41.8 in Spain.
  • Ireland managed to record above-50 scores of 51.9 in its composite index and a 3-month high of 51.5 in services.
  • Business optimism is at its weakest level since very early in 2009.

Japan’s service PMI rose sharply from 44.3 in August and 46.4 in September to 52.3 in October, the first reading above 50 since January.  Japan’s composite PMI of 52.4 was 5.4 points higher than the September score and the best level since this data series began in September 2007.

German industrial orders plunged 4.3% in September and by 3.6% in the third quarter, a 13.6% annualized drop from 2Q.  Domestic demand fell by 3.0% in September, while export orders slumped 5.4%.  Domestic orders for capital goods, a leading gauge of business investment, was 5.0% weaker in 3Q than in 2Q.

Spanish industrial production in September was 1.7% lower than a year earlier.  British car registrations were 2.6% higher than a year earlier in October.  Iceland’s trade surplus widened 40% on month to ISK 15.5 billion.

The latest news on Greece and from the G20 summit in Cannes

  • The idea of a Greek referendum was scrapped.
  • Greek Papandreou faces a no confidence vote late today that he could well lose.  Snap elections remain possible, which would delay the bailout deal.  Another possibility is a coalition government, with Lucas Papademos still seen as a front-runner to head such.
  • European leaders are being urged to finalize the details of the October 27 agreement and implement such asap.
  • Behind Greece lurks Italy and Armageddon.  Berlusconi showed up without the austerity plan in place that he’d promised to secure.  Italy’s problem is very high debt and soaring long-term interest rates that make servicing that debt unsustainable.
  • The draft of the G20 communique is believed to include tougher language on allowing market-determined exchange rates and requesting that surplus nations like China do more to promote domestic demand.

The Reserve Bank of Australia released its quarterly Monetary Policy Statement in which projections for real GDP, total CPI inflation, and core inflation were all revised downward.  The revisions justify the Official Cash Rate cut implemented earlier this week.  Real GDP growth was revised to 2.75% in the year to December 2011 from 3.25% projected in August and to 3-3.5% in the year to June 2013 from a 3.75% estimate earlier.  On-year CPI inflation was revised down a half percentage point to 2.0% as of mid-2012 and by a quarter percentage point to 3.25% by end-2012.  The forecast of core underlying inflation was cut by a half percentage point each to 2.5% by the middle of next year and to 2.75% at end-2012.  Thus core inflation is seen holding below the 3% target ceiling all of next year, whereas before such was expected to end the year above target.

Filipino CPI inflation accelerated to 5.2% in October from 4.8% in September and 3.3% a year earlier.  The core CPI rate rose 0.4 percentage points to 3.9%.  Malaysian exports and imports recorded on-year growth of 16.9% and 12.9% in September, and the trade surplus totaled MYR 9.6 billion.

Canadian jobs unexpectedly tumbled 54K in October, nearly reversing all of the 60.9K advance in September.  Full-time positions contracted 71.7K after increasing 63.8K the month before.  The unemployment rate rose to 7.3% from 7.1%.  It had also been at 7.3% in August.

Investors await the U.S. Labor Department’s October report on jobs.  Analysts expect a similar gain to the 103K rise initially reported for September.  The jobless rate is expected to print at 9.1% for a fourth consecutive month.  Canada’s IVEY-PMI index and building permits are being also released today.

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

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