An Ugly Monday: Confidence Drops that Euro Crisis Will Be Contained

July 23, 2012

The situations surrounding Greece and Spain have deteriorated.

  • This is the week that the EU/IMF/ECB creditors of Greece are to assess if that country is meeting is bailout targets.  Ahead of such, Germany’s Economics Minister and Vice Chancellor Roestler expressed grave doubt that Greece will satisfy its conditions.
  • Greek Prime Minister Samaras compared the Greek economy now to a Great Depression.  Spanish PM Rajoy said a second year of recession in Spain is likely.
  • Friday’s deal approving EUR 100 billion of aid for Spanish banks failed miserably to improve market conditions.  The IBEX is 4.2% lower.
  • Spanish 10-year sovereign debt yields short up as high as 7.565%, highest since Spain joined the common currency.
  • German 10-year bunds, in contrast, fell to as low as 1.13%.  The -0.07% 2-year bund yield was below zero for a 12th straight session.

The euro sank as low as $1.2082, weakest since June 2010.  That month saw the euro bottom at $1.1878.  The euro also touched JPY 94.24, its weakest yen cross since November 2000.  The Swiss franc hit 1.2004 per euro, literally pinned at the Swiss National Bank’s target ceiling.

Since Friday’s closing, the dollar shows net gains of 1.0% against the New Zealand and Australian currencies, 0.6% versus sterling, 0.5% relative to the Swiss franc, 0.4% versus the loonie and euro and 0.2% relative to the yuan.  The yen climbed 0.6% against the dollar and even more against other currencies, evoking expressions of graver concern from Japanese officials.  Dollar/yen is now at 78.07 after touching 77.94 earlier today.

Share prices have plunged in the Pacific Rim and Europe.  Aside from the aforementioned 4.2% slump in Madrid, equities have fallen 1.9% in Tokyo and Paris and 1.6% in Paris and Frankfurt.  Stocks also dropped 3.0% in Hong Kong, 1.9% in Taiwan, 1.8% in Indonesia, 1.7% in Australia, 1.6% in India, 1.4% in the Philippines and China, and 1.1% in Singapore.

Oil prices dropped 3.3% to $88.80 per barrel.  Gold prices are 0.8% lower at $1570.70 per ounce.

Yields on 10-year British gilts, German bunds and Japanese JGBs are six, three, and one basis points lower.

The prime minister’s cabinet office in Japan released its monthly assessment.  The view is the same as in June, namely that a moderately paced recover primed by reconstruction demand after the Sendai earthquake will continue.  Officials noted that mild deflation continues and promised to work with the Bank of Japan to eradicate such. 

Japanese supermarket sales were 3.9% lower than a year earlier in June following a 1.7% on-year drop in May.

Australian producer prices rose somewhat more than predicted last quarter, climbing 0.5% from 1Q and by 1.1% on year.  The domestic PPI went up 0.3%, while import prices jumped 1.9% on quarter and 2.7% on year.

CPI inflation in Hong Kong slowed from 4.3% in May to 3.7% in June.  Filipino industrial production was 3.1% greater than a year earlier.  Taiwanese industrial output, in contrast, recorded a 2.4% drop in the year to June.  CPI inflation in Singapore of 5.3% in June was up from 5.0% in May and also exceeded analyst expectations.  While Singaporean officials anticipate cooler inflation in 2H12, such will remain elevated from an historical standpoint.

In the U.S. today sees the release of the Chicago Fed National Activity Index.  The Bank of Israel’s monthly interest rate announcement is also scheduled.  No change in rates are expected there. Euroland’s preliminary estimate of consumer confidence is likely to show deterioration.

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



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