Fresh Cause for Investor Gloom

May 30, 2012

A press report from China dampened expectations of macroeconomic stimulus.

The ECB turned down the Spanish government’s request for help bailing out Bankia.

Italian sovereign debt auctions today produced only so-so results.

Facebook’s share price fell further in after-hours trading to less than $28.50.

Australian retail sales dropped to an 11-month low.

Euroland’s economic sentiment index fell 2.3 points in May to its worst reading since October 2009.  Money and credit growth in the region also slowed.

Oil prices declined 1.4% and are again below $90 at $89.51 per barrel.  Gold slid 0.1% to $1550.00 per ounce.

Many U.S. economic indicators are scheduled for release over the remainder of this week.

In Europe, Spain’s IBEX 35 has slumped 2.2%, and equities in London, Paris and Frankfurt have lost 1.5%, 1.3%, and 1.1%.  Stocks in the Pacific Rim fell by 1.9% in Hong Kong, 1.3% in Thailand, 0.8% in India, 0.5% in Australia, and 0.3% in Japan, China, and South Korea.

Additional risk aversion is reflected in overnight currency movement.  The yen climbed 0.6% against the dollar, which otherwise jumped 1.9% against the Australian dollar and climbed 0.6% versus the euro, Swissie, loonie, and kiwi.  The dollar is 0.4% stronger against sterling, but 0.1% softer relative to the yuan.

Ten-year sovereign debt yields fell by nine basis points in Britain and five bps in Germany.  The 10-year futures Treasury yield is six bps lower and below 1.70%.

The retail purchasing manager survey results for the euro area bounced 2 points to a reading of 43.3 from April’s second lowest-ever 41.3 score.  Even 43.3 connotes very sharp contraction.  Italy’s index rose 3 points to 35.8, while the French retail PMI remained at a record low of 41.4.  Germany’s reading improved to 50.7 from a contractionary 47.4 in April.

Bank of England monetary statistics were somewhat better than expected.  Net lending to individuals went up GBP 1.4 billion in April.  Net mortgage lending rose GBP 1.1 billion.  Consumer credit increased GBP 0.3 billion, and mortgage approvals of 51.82K exceeded the total in March of 51.07K.  M4 recovered 1.1% on month and posted a smaller 3.8% on-year decline after dropping 4.8% in the year to March.

In the euro area, M3 money recorded smaller on-year growth of 2.5% in April versus 3.1% in March, and the 3-month year-over-year pace held steady at 2.7%.  M1 growth slowed to 1.8% from 2.8%.  Lending to the private sector halved to a mere 0.3% from 0.6% in the year to March.  Loans to households and to corporations were just 0.5% higher than a year earlier.

Euroland’s economic sentiment index printed at 90.6 in May after 92.9 in April, 94.5 in March and 105.1 a year earlier.  Industrial confidence worsened 2.3 points.  Service sector confidence fell by 2.5 points.  consumer confidence improved 0.6 points to minus 19.3, but retail sector confidence dropped 7.0 points to minus 18.1.  In the construction sector, confidence weakened 2.6 points to minus 30.1.  Euroland’s business climate index slumped 0.25 to a reading of negative 0.77 and was 2.21 points below its post-Great Recession peak touched in February of 2011.

Sweden skirted a recession.  After falling 1.0% in the final quarter of 2011, Swedish real GDP rebounded 0.8% last quarter but showed only a 1.5% on-year advance.  The current account surplus in 1Q12 of SEK 69.5 billion was 39% wider than the 4Q11 surplus.

Switzerland’s index of leading economic indicators had a better 0.81 reading in May after a score of 0.43 in April.

Portuguese industrial output and retail sales were respectively 7.4% and 9.0% lower in April than a year earlier.  Dutch PPI inflation slowed to 2.6% in April from 4.0% in March.  Spanish CPI inflation edged down a tenth percentage point to 1.9% in May.  Italian PPI inflation slowed to 2.5% in April from 2.7% in the prior month.  Belgian CPI inflation decelerated to 2.8% in May from 3.2% in April.  Icelandic PPI inflation eaded to 5.3% last month from 6.4% in March. 

Japan’s May manufacturing purchasing managers index (50.7) indicated only marginal growth, and the export orders subindex was below the 50 no-change line for a second straight time.  Bank of Japan Governor said the current account is likely to stay in surplus.

Australian retail sales fell 0.2% in April (the weakest month since May 2011), and the rise in March was revised upward to 1.1%.  Sales were 3.1% higher than a year before.  Construction work done advanced 5.5% last quarter after contracting 4.6% in 4Q11.  New Zealand building permits sank 7.2% on month in April, making such the worst month since October.  The South Korean current account surplus in April was 40% smaller than in March.

Scheduled U.S. data today include pending home sales and weekly chain store sales, oil inventories, and mortgage applications.  Rosengren, Fisher and Dudley of the Boston, Dallas, and New York Feds speak.  More importantly, so does ECB President Draghi.  Canada will be releasing producer prices and raw material prices, and Brazil’s monetary policy committee, COPOM, will announce its latest decision on the Selic rate.

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

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