Euro Debt Crisis Infecting Healthier Economies

November 17, 2011

Equities have fallen by a further 1.4% in France, 1.3% in Great Britain and 0.9% in Germany.  Stocks slumped 1.9% in India, 1.0% in Singapore, 0.8% in Hong Kong and Malaysia, 0.6% in Singapore and 0.3% in China.  Equities firmed 0.3% in Australia and 0.2% in Japan.

German ten-year bund yields dipped another two basis points to 1.79%, whereas yields elsewhere in Euroland rose.  The French-German yield spread reached 200 basis points, 79 bps wider than two weeks ago and 131 bps wider than at the start of this calendar quarter.  Strains also have been felt in Finnish, Dutch and Austria markets.  A sale of Spanish bonds went for an average yield of 6.98%, most in 13 years, and was poorly bid.

Dollar movements have been modest.  The greenback eased 0.3% against the euro and sterling and by 0.2% against the yen, but it is marginally firmer against commodity-sensitive currencies.  The Swissie and yuan are steady.

Oil slipped 0.2% but remains comfortably above the $100 threshold at $102.36 per barrel after hitting a 6-1/2 month high on WednesdayGold dropped 0.9% to $1759.00 per ounce.

Japanese stock and bond transactions in the week of November 12 generated a JPY 556 billion inflow, considerably smaller than the inflow of JPY 1.952 trillion in the previous week.  The Bank of Japan’s downgraded monthly assessment projects flat trends in exports and industrial production “for a while” and zero core CPI inflation “for the time being.”  Blame for the more moderate pace of overall growth is ascribed to the overseas slowdown, the elevated yen, and floods in Thailand.

New Zealand producer output prices firmed just 0.2% in the third quarter and recorded a smaller on-year pace of 3.5% after 4.5% in 2Q.  Producer input prices climbed 0.6%, the least in six quarters, and by 4.7% from 3Q10.

China’s index of leading economic indicators posted a smaller 0.4% increase in September, but a quarterly monetary report from the People’s Bank of China underscored persistent inflationary risks faced by that economy.

Singapore’s trade surplus narrowed 27% to SGD 4.8 billion in October.  Hong Kong joblessness edged up to 3.3% last month from 3.2% in September.

The ASEAN summit in Bali voiced hope that regional economies will cope with the euro debt crisis.  A senior official of the Reserve Bank of Australia made some optimistic remarks about that economy’s resiliency.  Australian weekly wages increased 1.2% last quarter and were 5.3% greater than in 3Q10.

Better-than-forecast growth of 0.6% in British retail sales volume last month has been generally dismissed as unrepresentative amid deepening gloom.

The Nationwide index of British consumer confidence sank sharply to a 90-month low of 36 in October from readings of 45 in September, 48 in August, 49 in July, 51 in June and 55 in May.  The National Institute of Economic and Social Research considers the possibility of a U.K. recession to be a toss up.

Euro area construction output fell by 1.3% in September, which trimmed the 3Q advance to 0.7%.  Construction was only 0.4% higher than in September 2010.                  

The Swiss ZEW expectations index, a gauge of investor sentiment, weakened this month to a reading of minus 64.3 from minus 54.4 in October.  Finnish producer price inflation slowed to 3.7% in October from 4.3% in September.  Dutch consumer confidence rose a point to minus 32 in November.  The Dutch jobless rate had risen in October to 5.8% from 5.6% in September.  Icelandic harmonized consumer prices rose 0.4% on month and 3.3% on year in October.

South African wholesale turnover in September climbed by 0.9% on month and 9.5%, most in ten months, from a year earlier.

Scheduled U.S. data today include housing starts, building permits, the Philly Fed manufacturing index and weekly jobless insurance claims.  Canada will be reporting its monthly data on securities transactions.  Dudley and Pianalto of the Federal Reserve speak publicly, but the main central bank attention remains fixed on the ECB and the relentless resistance of Germany to letting that institution act as a lender of last resort for the euro area and its troubled banks.

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

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