Summit Time and the Living Ain’t Easy

June 28, 2012

Another summit of EU leaders has begun in Brussels amid dampened market expectations that anything very constructive will emerge to end the debt and banking crisis.  German officials remain adamant in resisting new initiatives.  Speculation continues that the ECB will cut interest rates next week.  Just in is an announcement from the Czech monetary authorities of a 25-basis point cut to a record low 0.50% of its policy rate.

Markets also await the U.S. Supreme Court’s possible ruling this morning on Obamacare, which cares enormous implications for the November election and fiscal policy.  Revised U.S. GDP figures arrive, too.

The New York Times reports that J.P. Morgan’s credit derivative trading losses may reach $9 billion, over four times greater than originally estimated seven weeks ago.

Share prices are falling in Europe after mixed results in Asia.  Equities are down 1.6% in Germany, 1.1% in France, 0.9% in Britain, and 0.4% in Spain.  In the Pacific Rim, Japan’s Nikkei advanced 1.7%.  Stocks also rose 0.5% in Thailand, 0.4% in New Zealand, 0.2% in Singapore, and 0.1% in India but dropped by 1.2% in Indonesia, 0.9% in China, 0.8% in Hong Kong, and 0.2% in Taiwan.  Australian stocks closed unchanged.

Gold and oil prices fell by 0.7% to $1567.20 per ounce and 0.4% to $79.89 per barrel.

The 10-year German bund and British gilt yields declined by six and five basis points, while the 10-year Japanese JGB is one basis point firmer.

Euroland retail PMI scores and measures of sentiment were released.

  • The retail purchasing managers index in the eurozone posted a record eighth straight sub-50 score, depicting contracting sales, but the reading of 48.3 represented a 3-month high and was five points higher in June than May.  April had seen a trough of 41.3 registered.  The German retail PMI rose 1.7 points to 52.4.  The French retail PMI printed at 48.9, up from 41.4 in both April and May, and Italy’s score of 41.7 represented a somewhat lessening rate of decrease ofter readings of 35.8 in May and 32.8 in April.
  • Euroland’s business climate index of negative 0.94 in June followed scores of minus 0.79 in May, minus 0.51 in April, minus 0.27 in March and a peak of 1.44 in February 2011.  Analysts had hoped for some improvement between May and June.
  • The eurozone economic sentiment index recorded a reading of 89.9 in June, 0.6 points less than in May and 3.0 points lower than in April.  Industrial sentiment of minus 12.7 was down from minus 11.4 in May and minus 9.0 in April.  The indices for consumer confidence (-19.8) and service sector sentiment (-7.4) were weaker than in May, but retail sentiment and construction sentiment were not as weak as in the prior month.
  • Austria’s manufacturing purchasing managers index edged closer to the no-change line, dipping to 50.1 in June from 50.2 in May and 51.2 in April.

Euroland’s index of leading economic indicators fell 0.3% in May, and the coincident index was unchanged from April.

Britain’s current account deficit in the first quarter of GBP 11.179 billion was 24% greater than forecast and more than 50% bigger than the deficit of GBP 7.2 billion in the final quarter of 2011. 

Revised British GDP slid 0.3% between 4Q11 and 1Q12 and was 0.2% lower than in the first quarter of 2011.  4Q11 growth was revised downward to a drop of 0.4% and an on-year contraction of 0.1%. 

The Nationwide British house price index posted a monthly drop in June of 0.6% and the largest on-year decline (1.5%) since 2009.  Analysts were looking for a minuscule monthly uptick.

German labor statistics were weaker than anticipated.  The jobless rate remained at 6.8% for a 7th straight time in June, but the number of unemployed workers went up 7K on top of gains of 18K in April and 1K in May.  Employment was 1.4% higher than a year earlier in April.  Although labor conditions are not as strong as last year, they remain stellar compared to most other parts of Europe.  Germany’s IFO Institute released new forecasts, projecting growth of 0.7% this year and 1.3% in 2013.

Italian consumer prices rose 0.2% in June and 3.3% on year.  The Italian PPI dipped 0.3% on month in May and to a 12-month increase of 2.2% from 2.5% in the year to April. Spanish consumer prices were 1.9% higher than a year before in June.  Belgian consumer prices dipped 0.2% in June and were 2.3% higher on year.

Swedish retail sales volume rose 0.4% in May and by 4.6% from a year earlier.  The Swedish SEK 9.8 billion trade surplus in May was twice as high as surpluses of SEK 4.8 billion in April and SEK 4.7 billion in May 2011.  The year to date surplus of SEK 36.4 billion was 25% wider than a year earlier.

Producer prices in South Africa firmed 0.5% on month and by 6.6% on year in May, matching April’s 12-month advance.

Japanese retail sales rose 0.7% on month in May and by 3.6% from a year earlier.  While down from a 5.7% on-year gain in April, the result surpassed expectations.  Large store retail sales were 0.9% lower than in May 2011, with department store and supermarket sales falling by roughly the same amount.

Stock and bond transactions last week in Japan generated a JPY 1.151 trillion outflow, more than reversing a net inflow of JPY 424 billion in the week of June 20.

South Korea’s current account posted a $3.6 billion surplus in May after a $1.7 billion surplus in April.

New home sales in Australia rose 0.7% in May after a 6.9% advance in April.  The NBNZ index of New Zealand business confidence weakened to a reading of 12.6 in June after 27.1 in May and 35.8 in April.  Deterioration in the latest month exceeded analyst expectations.

Besides the Obamacare ruling and GDP data, analysts also await U.S. weekly jobless insurance claims and the Kansas City Fed monthly manufacturing index.  Fisher and Pianalto of the Fed speak publicly.  So do Constancio of the ECB and Weale of the Bank of England.

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

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