Investors Fed Up with the Toxic Rhetoric of European Officials

November 15, 2011

Risk aversion has spiked.  The German Dax, Paris Cac and British Ftse have so far dropped today by 2.4%, 2.1%, and 1.4%.  Ten-year Italian bond yields of are again more than 700 basis points above German bunds.  German bunds and British gilts have fallen by three and four basis points.  The dollar is stronger, and commodities are softer.  Expectations are broadening of a U.S. and European recession next year.

In the Pacific Rim, equities fell by 1.4% in India, 0.9% in South Korea, 0.8% in Hong Kong, 0.7% in Japan and Singapore, 0.5% in Taiwan, 0.4% in Australia, and 0.2% in China.

The dollar has advanced 1.6% against the kiwi, 1.1% versus the Swissie, 1.0% relative to the loonie, 0.8% against the Australian dollar and euro, and 0.3% versus sterling.  The yen has been even stronger than the dollar, firming 0.2% and prompting an intervention warning from Prime Minister Noda.

Gold and oil prices eased by 0.9% and 0.5% to $1762.70 per ounce and $97.66 per barrel.

German and French third-quarter GDP growth wasn’t bad.

  • German GDP grew 0.5% or 2.0% at an annualized rate, which was faster than an upwardly revised 0.3% growth rate in 2Q.  Such was the tenth quarterly expansion in a row.  On-year growth slowed to 2.6% from 2.9% in the second quarter and a recent peak of 4.7% in 1Q.  Real GDP was 6.7% higher than two years earlier in 3Q09, constituting an average annualized rate of 3.3% over that period.
  • French GDP rebounded with a gain of 0.4% on quarter after a dip of 0.1% in 2Q.  Real final domestic sales accounted for three-fourths of the rise in activity last quarter, and net exports were responsible for the rest.  Inventories had a neutral effect on growth.  GDP was 1.6% higher than a year earlier, the same on-year increase as in the second quarter.

Real GDP in the euro area as a whole grew more slowly than in the two biggest members, increasing 0.2% in 3Q for the second quarter in a row and slowing to a four-quarter 1.4% rate of increase from 1.6% in 2Q and 2.4% in the first quarter of 2011. 

  • Spanish GDP was unchanged and merely 0.8% higher than in 3Q10.
  • Greek GDP was 5.2% weaker than in the third quarter of 2010.
  • Portuguese GDP sank 0.4% on quarter and by 1.7% on year.
  • Belgian GDP was unchanged on quarter and slowed to an on-year 1.8% increase from 2.2% in the year to 2Q.
  • Dutch GDP fell 0.3% in 3Q and was 1.1% higher than in 3Q10 after rising 2.8% on year in 1Q and 1.6% in 2Q.
  • Austrian GDP climbed 0.3% on quarter but slowed to 2.8% on year from 4.0% in the year to 2Q.
  • Finnish GDP also increased 0.3% from 2Q.  It was 2.8% higher than a year earlier.

Among other European countries to report third-quarter growth, Czech GDP was flat and up 1.5% on year.  Romanian GDP increased 1.9% on quarter and 4.5% on year.  Hungarian GDP advanced 0.5% and 1.5% on year.  Final Hungarian industrial production data confirmed that such was 3.0% higher in September than a year earlier.  Dutch retail sales slipped 0.2% in September and by 4.0% on year.  The Dutch trade surplus widened 56% on month to EUR 3.6 billion in September.  Finland’s current account surplus almost tripled to EUR 460 million in September.  Italy’s trade deficit narrowed to EUR 1.35 billion in September.

Minutes from the Reserve Bank of Australia policy meeting last week showed that monetary officials seriously considered not implementing a rate cut because of the mining boom but in the end agreed to a 25-bp cut because of increased downside global risks and a lower Australian inflation outlook.

Australian auto sales rose 1.1% on month and 4.4% on year in October.

Singapore retail sales were weaker than assumed in September, rising just 0.3% on month and dipping 0.1% on year.  Turkey’s current account deficit widened 66% to $6.8 billion in September.

Investor confidence toward Germany fell according to the ZEW index to a 37-month low of minus 55.2 in November from minus 48.3 in October and +3.1 six months ago.  This index has a long-term mean value of +25.0.  The current conditions component of the ZEW index for Germany weakened to +34.2 from 38.4 in October and 91.5 last May.

ZEW investor confidence toward the euro area printed at minus 59.1 in November versus minus 51.2 in October and +13.6 last May.  The reading for current conditions was minus 39.8 after minus 31.7 in October and +13.6 last May.

British inflation slowed more than expected in October.  The CPI edged up 0.1% and posted a 12-month gain of 5.0%, down from 5.2% in September and the first on-year improvement since June.  Core CPI inflation slowed to 3.5% from 3.7%.  On-year retail price inflation and the RPI-excluding mortgages index also had slower on-year changes in October of 5.4% and 5.6%.  Bank of England Governor King’s letter to the Chancellor of the Exchequer stuck to the view that inflation will be near 2.0% by the end of next year.

The British Department of Communities and Local Government gauge of house price inflation showed an on-year drop of 1.4% in September.

U.S. President Obama’s Asia trip continues with a stop in Australia.

Scheduled U.S. data today include retail sales, producer prices, business inventories, The Empire State manufacturing index, and weekly chain store sales.  Canada reports auto sales and the monthly survey of manufacturing shipments, orders, and inventories.  Chile’s central bank will announce its latest interest rate decision. 

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

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