Pessimistic Mood Despite Greek and French Election Results

June 18, 2012

European elections yesterday produced results that were as good as could have been expected.  But Spain’s 10-year sovereign debt yield jumped to an 13-year high of 7.13% on unsettling news about the health of Spanish banks. 

Parties in Greece committed to remaining in the euro and honoring previously negotiated austerity captured a majority of parliamentary seats.  Antonis Samaras, head of New Democracy, is expected to form a coalition with PASOK that controls nearly 180 of the 300 seats. 

French Socialists took a majority of seats in the National Assembly.  They are expected to control over 310 of 577 seats.  Socialists hold the presidency and both houses of parliament for the first time in the 54-year history of the Fifth Republic.  President Hollande is putting greater priority on the pursuit of growth above blind fiscal austerity and thus no longer aligning France with Germany.

Data released by the Bank of Spain showed bad bank loans at an 18-year high of 8.72% of total loans and bank deposits lower than a year ago.  Besides the further spike in long-term Spanish interest rates, Sanish share prices have fallen nearly 1%.

The German Dax is 0.7% higher, but stocks in Paris and Britain are up just 0.3%.  These modest gains contrast with initial euphoria that saw equities in the Pacific Rim advance by 1.8% in Japan Taiwan and South Korea, 2.0% in Australia, 1.1% in Indonesia, and 1.0% in Hong Kong. 

The dollar advanced 0.6% against the yen on concern that a nuclear power ban would leave the country with insufficient energy supplies this summer.  Movement in other key dollar relationships have been slight.  The U.S. currency is up by 0.2% relative to the loonie and sterling and by 0.1% against the Swiss franc but down by 0.4% against the kiwi, 0.2% versus the yuan and 0.1% vis-a-vis the Australian dollar.

The 10-year German bund yield is unchanged from Friday’s close.  !0-year British gilt and Japanese JGB yield have slipped three and one basis points.

Gold and oil prices are down 0.3% and 0.1% at $1624.00 per ounce and $83.97 per barrel.

In yesterday’s third election, the Islamic Muslim Brotherhood has claimed that its candidate, Mursi, won Egypt’s presidency.  The final tally will not be announced for several days.

The Reserve Bank of India, which had cut key interest rates by 50 basis points in April, eased no further after today’s policy meeting.  In a surprise to some analysts, the key repo and reverse repo rates were left at 8.0% and 7.0%.  Reserve requirements, which had be cut by a total of 125 basis points in two moves last January and March, was also kept unchanged at 4.75%.  Bank officials noted continuing inflationary forces that limit scope of easier policy.

The Bank of Japan’s monthly economic assessment was released, repeating what had been contained in last week’s post-policy meeting statement.  The assessment was upgraded to “economy is starting to pick up moderately.”  Most sources of demand were depicted positively.  Domestic demand remains firm with support from private investment, public investment, housing and consumption.  Exports are also showing signs of a pick up.  Employment, consumer confidence, and corporate profits are improving.  Industrial production is picking up moderately.  Core inflation should hover around zero for the time being.

Japanese department store sales posted an on-year drop of 1.0% last month following an increase of 1.3% in the year to April.  Tokyo sales growth slowed to 2.1% from a 6.7% 12-month advance in April.

Home prices in China again fell in a majority of cities last month but not in more of them than seen in April.

Hong Kong unemployment averaged 3.2% in March-May, down from 3.3% in February-April.

Australian motor vehicle sales increased 2.4% in May and were 22.4% greater than a year earlier.  Consumer sentiment in New Zealand fell 2.5 points to a reading of 99.9 in the second quarter of 2012, which was a 5-quarter low.  The New Zealand services index ticked up a tenth percentage point to a reading of 56.8 in May.

Turkish consumer confidence recovered to a score of 92.1 in May from 91.1 in April.  April saw the only decline in the past six reported months.

France’s index of leading economic indicators slid 0.1% in April.  The index of coincident indicators was unchanged on month.

Britain’s Rightmove house price index increased 1.0% in June and showed an accelerated on-year advance of 2.4% after rising 2.0% in the year to May.

Ireland’s trade surplus widened 10.3% in April despite a drop in exports.  Norway’s current account in 1Q12 was at a record high of NOK 137 billion and 63% bigger than the surplus in the first quarter of 2011.  The Dutch current account surplus widened 22% to EUR 18.9 billion in 1Q12.

The U.S. National Association of Home Builders will release its monthly index today.  Canadian securities transactions data also arrive.

G20 leaders started their summit in Los Cabos, Mexico, with loud grumbling from emerging market officials about Europe’s continuing failure to resolve the banking and debt crisis.

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

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