Greek Misgivings Linger

February 22, 2012

Post-Greek deal relief has been disappointedly muted.  The dollar is stronger.  Long-term gilt and bund yields are softer.  Commodities and share prices are mostly down.  Investors don’t believe Greece will meet its deficit-reduction targets.  Elevated oil prices and softer-than-predicted European preliminary purchasing manager survey readings are two other concerns.

The dollar strengthened overnight by 0.7% against the yen and is above 80 for the first time since July 12.  The dollar gained 0.6% versus sterling, 0.3% relative to the Australian dollar, 0.2% vis-a-vis the kiwi, and 0.1% against the euro, loonie and Swiss franc.  The yuan is steady.

The German Dax has so far lost 1.1% in value today, and the Paris Cac and British Ftse are down by 0.6% and 0.5%.  Stocks in Asia were mixed, with declines of 1.5% in India, 1.0% in Singapore and 0.2% in Thailand, Indonesia and Malaysia but increases of 1.4% in China, 1.0% in Japan and Taiwan, 0.7% in The Philippines and 0.3% in Hong Kong.

Despite a dip of 0.6%, WTI oil prices remain high at $105.64 per barrel.  Gold dipped 0.2% to $1754.80 per troy ounce.

The yields on 10-year German bunds and British gilts fell by four and five basis points.  That on Japanese JGBs edged two bps higher.

China’s manufacturing purchasing managers index, the one compiled by HSBC Bank, increased by 0.9 points but at 49.7 posted a fourth straight sub-50 reading.  A meaningful improvement of domestic demand has not kicked in.

Euroland’s composite PMI score of 49.7 in February was the fifth sub-50 reading in six months after January’s 50.4.  It was also a tad below expectations.  The manufacturing PMI ticked 0.2 higher to a six-month high of 49.0, with an output subcomponent of 50.4 for a second straight month.  The services PMI unexpectedly fell, however, printing at 49.4 versus 50.4 in January.  Readings in Euroland’s peripheral members remained substantially below the 50 breakeven line, underscoring the continuing risk of a regional recession.

Germany’s composite purchasing managers index fell back a full point to 52.9, and the manufacturing PMI score of 50.1 implies stagnation.  In January, the manufacturing PMI had recovered to 51.0.  Germany’s service sector PMI fell 1.1 points but remained above 50 with a reading in February of 52.6.

The French composite PMI of 50.6 was 0.6 points softer than January’s score.  While manufacturing rose 1.7 points to a 7-month high of 50.2 (still merely treading water), services fell 2.0 points to 50.3, a two-month low.

French consumer prices were also released.  The harmonized CPI fell 0.4% in January, twice as much as predicted, and this trimmed on-year inflation to 2.3% from 2.5%.  The decline occurred despite a 2.4% leap in energy (7.9% from January 2011).  The French index of leading economic indicators rose 0.3% on month but fell 0.2% on year.

Industrial orders in the euro area rebounded from a 1.1% drop in November with a 1.9% increase in December.  Core orders advanced 2.5% on month but posted a 0.8% on-year drop.  December’s overall increase was powered by gains of 8% in Italy and 2.3% in Germany.  Orders fell 2.5% in Portugal, 1.3% in Greece and 1.2% in Spain.  Orders plunged 13% at an annualized rate between 3Q11 and 4Q11.

Czech producer prices jumped 1.0% in January but recorded a smaller 12-month increase of 4.1%.  Icelandic wages were 9.1% higher than a year earlier in January.  Sweden’s jobless rate of 8.0% in January was a tad above expectations, and the seasonally adjusted 7.6% rate was a tenth higher than in December.  Norwegian unemployment averaged 3.3% in November-January. 

Minutes from the Bank of England’s February Policy Committee meeting revealed unanimity in keeping the Bank Rate at 0.5%, its level since March 2009, but two dissents in the vote to expand the asset purchase program to GBP 325 billion from the prior ceiling of GBP 275 billion.  Adam Posen and David Miles argued for a hike of GBP 75 billion to a GBP 350 billion ceiling.  The committee’s seven-person majority was hopeful about the handling of the euro debt crisis and fearful that a larger expansion of quantitative easing might generate undue concern about British economic prospects.

Australia’s labor cost index advanced 1.0% in 4Q11 and by 3.6% from a year earlier.  These gains surpassed expectations and followed increases in 3Q of 0.8% on quarter and 3.7% on year.  Australian skilled job vacancies declined for a seventh straight time in January, falling by 0.6%.  Australia’s index of leading economic indicators rose 0.2% in December, but the coincident index stagnated that month.

An advisory council to the Prime Minister’s office in India revised its forecast for fiscal 2012 GDP growth down 1.1 percentage points to 7.2%.

Malaysian CPI inflation slowed to 2.7% last month from 3.0% in December.  Taiwan had 4.2% unemployment in January and confirmed a 1.9% on-year rise of GDP last quarter.  South African CPI inflation rose to 6.3% in January from 6.1% in December.

U.S. mortgage applications sank 4.5% last week as both refinancing activity and new loans declined.  The 30-year fixed mortgage rate ticked up a basis point to 4.09%, still just four basis points above the record low.  The latest weekly U.S. chain store sales data were mixed.

U.S. existing home sales and weekly oil inventory data will be released later today.  Republican candidates for the presidency hold their first debate in over a week tonight.  German Chancellor Merkel speaks later today.  The Dutch Finance Minister captured the mood of many in doubting publicly that Greece will deliver its promised debt-reduction targets.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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