Tensions Intensify in Italy but Ease in Greece

November 7, 2011

Greek Prime Minister Papandreou is stepping down in favor of a temporary coalition government whose leader is yet to be named.  The Unity Government will be installed tomorrow and must reaffirm allegiance to the October 27 bailout plan.  Then the next EUR 8 billion loan from the EU will be received.  Greek voters will elect a new government February 19.

The market cross-hairs have turned on Italy, where Prime Minister Berlusconi is likely to lose a vote of confidence tomorrow.  After ECB Director Mersch said the central bank had considered ending its purchases of Italian bonds if Italy doesn’t put a tougher austerity plan in place, Italian 10-bonds climbed to a new post-EMU high, widening their spread with German bunds toward 500 basis points.

Euroland finance ministers will be meeting today in Brussels.  G20 leaders completed their summit in Cannes and released an Action Plan for Growth and Jobs.  See review on this site.

The dollar improved 1.3% against the Swiss franc but shows smaller overnight rises of 0.5% against the Australian dollar, 0.2% versus the Chinese yuan and 0.1% relative to the euro.  The greenback eased by 0.2% against the yen and kiwi and of 0.1% versus the loonie and sterling.

Several Asian markets were closed to celebrate the muslim feast of sacrifice, Eid-al-Adha.  Among markets that were open in the Pacific Rim, share prices fell 0.4% in Japan, 0.8% in Hong Kong, 1.0% in China, and 0.5% in South Korea.  European equities are lower too, with declines of 0.7% in Great Britain, 0.3% in France and 0.2% in Germany.

The yields on 10-year British gilts and German bunds each have eased two basis points.  That on Japanese JGBs firmed a single basis point back to 1.00%.

Gold and oil prices rose by 0.7% and 0.2% to $1769.00 per ounce and $94.46 per barrel.

New estimates of the size of intervention conducted a week ago by Japan’s Ministry of Finance put such at about JPY 8 trillion, higher than the previous daily operations in September 2010, March 2011, and August 2011.

Japan’s index of leading economic indicators fell to a 4-month low of 91.6 in September from 93.8 in August and 94.8 in July.  The coincident index dropped to 88.9 from 90.3.

German industrial production sank 2.7% in September and were 1.9% lower than their 3Q average level.  capital goods production slumped 4.7% in the latest reported month.  Like industrial orders, which fell by 4.3%, production was considerably weaker than assumed.

Euro area retail sales fell 0.7% in September and were 1.5% weaker than a year earlier.  Sales were unchanged between 2Q and the third quarter. Retail sales in September posted declines of 3.7% in Portugal, 1.7% in Spain, 0.6% in France and 0.3% in Ireland.

The Sentix measure of investor sentiment toward the euro area plumbed to its weakest level since August 2009, falling to minus 21.2 in November from minus 18.55 in October, minus 15.37 in September, minus 13.46 in August and +5.31 in July.

Britain’s Halifax house price index increased 1.2% in October, defying expectations of no change.  The index in August-October was still 1.8% lower than a year before, down from a peak on-year reduction of 4.2% in March-May.

Swiss consumer prices were again softer than forecast.  Such dipped 0.1% both on month and on year in October.  The Swiss jobless rate edged up a tenth percentage point to 2.9% in October.

Several nations besides Germany reported industrial production.  Norwegian output dipped 0.1% in September, cutting the 12-month increase to 4.2% from 6.1% in the year to August.  Danish industrial production advanced 1.0% in September but was 0.2% softer than a year earlier.  Czech output firmed 0.1% on month and 2.5% on year.

The Czech trade surplus rebounded to CZK 20.97 billion in September from CZK 3.13 billion in August and CZK 13.5 billion in July.  Finland’s trade balance swung from a EUR 280 million deficit in August to a EUR 90 million surplus in September.  Sweden’s services production firmed 0.5% on month and 6.2% on year in September.

Indonesian real GDP grew 3.5% last quarter, leaving the on-year growth rate at 6.5% for a third straight quarter.

Scheduled U.S. data today are consumer credit and the October federal budget.  New England Fed President Rosengren speaks publicly today.

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

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