Share Prices Higher Despite Skepticism about Bailout for Spanish Banks

June 11, 2012

Equities advanced 2.4% in Hong Kong, 2.0% in Japan and Spain, 1.8% in Singapore, 1.6% in the Philippines, 1.7% in Taiwan, 1.3% in China, and 1.1% in Indonesia.  The German Dax, Paris Cac, and British Ftse are up by 1.7%, 1.2% and 0.7%.  Australia’s market was closed for the Queen’s Birthday.  U.S. stocks were essentially unchanged one hour into today’s trading day.

There are two main stories, the release of monthly Chinese economic data and reaction to Spain’s formal request from the EU for around EUR 100 billion of bailout money for its banks.

The dollar has fallen 0.5% against sterling, 0.3% versus the euro, Swissie and kiwi, 0.2% relative to the Australian dollar and 0.1% vis-a-vis the loonie.  The yuan is unchanged, while the yen has dipped 0.1% against the dollar.

Oil and gold prices advanced by 0.9% and 0.4% to $84.85 per barrel and $1597.10 per ounce.

The 10-year British gilt yield is three basis points higher, and 10-year Japanese JGBs and German bunds have each risen one basis point.

Sketchy details about the bailout plan for Spanish banks are an ongoing concern.  The 10-year Spanish sovereign debt yield dipped below 6.0% but didn’t stay there.  Greek elections next Sunday are another worry.  Moody’s warned of possible credit rating downgrades for both Greece and Spain.  The Greek do-over election is now less than a week away.

Chinese data were mixed.  Price data were lower than projected, but money and lending figures exceeded expectations.  Trends in industrial production, retail sales and business investment seem to be flattening.  Export and import growth easily surpassed expectations.

  • Consumer prices posted a 3.0% on-year rise in May, down from 3.4% in April, 4.5% in January, and 6.5% last July.  Analysts had anticipated a slowdown to 3.2%.  The PPI fell 1.4% on year, more than the 1.1% drop that was projected, after a decline of 0.7% in April and a 7.5% jump in the year to July 2011.
  • M2 money growth accelerated to 13.2% from 12.8% in April and 12.4% in January.  M2 had advanced 15.9% in the prior statement year to May 2011. M1 growth also accelerated, and bank lending picked up to 793 billion yuan in May from 682 billion yuan in April.  Analysts had predicted a 750 billion yuan increase.
  • Industrial production was 9.6% higher in May than a year earlier.  That was a bit better than the 9.3% on-year climb recorded in April but lower than the 12.0% average increase in 1Q12.
  • Retail sales disappointed, with a rise of 13.8% from May 2011, down from 14.1% in April and 16.0% in 1Q12.
  • Fixed asset investment increased 20.1% on year over the first five months of 2012 versus 20.2% in January-April and 23.8% in calendar 2011.
  • The trade surplus of $18.7 billion in May was similar to April’s $18.4 billion, but that steadiness masked accelerations of export growth to 15.3% from 4.9% in April and import growth to 12.7% from 0.3%.
  • The overall message of these data seems to be that easier monetary policy seems to be steering China’s economy to a moderate rather than radical slowdown, and that’s good news for China, the Pacific Rim and the world economies.

Japan’s Ministry of Finance released results on business conditions from its quarterly survey.  Large firms posted a reading of minus 3.1, 0.4 points lower than in 1Q12, but a strong improvement to 8.8 is anticipated in the second half of 2012.  Large manufacturers scored a negative 5.7 after minus 7.3 in 1Q, while large non-manufacturers had readings of minus 1.6 in both quarters.

Japanese on-year M2 money growth slowed to 2.1% in May from 2.6% in April and 3.0% in 1Q.  M3, M1, and broad liquidity growth also slowed in May.

Japanese consumer confidence rose by 0.6 points to 40.7 in May, highest since January 2011.  Machine tool orders posted an on-year drop of 2.9%, however, after a 0.4% uptick registered in April.

Italian GDP growth was revised to an on-year drop of 1.4% in 1Q from a decline of 1.3% reported earlier, but the quarterly drop of 0.8% was not modified. 

French industrial production was significantly more buoyant in April than expected, rising 1.5% on month and 0.9% on year.

Ireland’s construction purchasing managers index, which has shown contractionary sub-50 scores for the past five years, ticked up to 46.3 in May from 45.3 in April.

Danish consumer prices were unchanged on month and 2.1% higher in May than a year earlier.  Norway’s CPI also was unchanged on month but just 0.5% above the May 2011 level.  Norwegian producer prices sank 2.1% on month and were 2.5% higher than in May 2011.  Denmark’s current account surplus widened fivefold in April to DKK 9.5 billion.  Portugal’s trade deficit totaled EUR 2.5 billion over the three months to April. 

South Korean producer prices fell 0.6% in May and to a 12-month increase of 1.9% from 2.4% in April.  Malaysian industrial output fell 1.7% in April but was 3.2% greater than a year earlier. 

No U.S. data releases occurred today.  Late Friday came news of unchanged Bank of Mexico monetary policy, which was the expected result.

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

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