Concern about Italy

December 10, 2012

Italy took a step closer to winter elections.  The highly respected Prime Minister Monti will resign after the 2013 budget is approved, and he is not expected to get reelected.  That will put the likelihood of Italy fulfilling its austerity promises in jeopardy.

Share prices in Italy have tumbled 3.2% today, dragging down other European markets by 1.7% in Spain, 0.6% in France, 0.5% in Germany, and 0.3% in Britain.

Trading in the Pacific Rim saw Chinese equities advance 1.1% despite disappointing trade data.  Stocks climbed 0.9% in Malaysia, 0.4% in Hong Kong and 0.1% in Australia and Japan but fell by 0.6% in the Philippines, 0.4% in Taiwan, 0.3% in New Zealand and 0.1% in India.

The dollar fell 0.4% against the yen and 0.1% versus the loonie, kiwi and sterling.  The U.S. currency is up 0.1% against the euro and unchanged relative to the Swissie and Australian dollar.

The 10-year German bund and Japanese JGB yields slipped by two and one basis points.

Gold and oil prices have increased 0.5% and 0.6% to $1714.10 per ounce and $86.44 per barrel.

Revised Japanese national income account figures for the third quarter showed a 3.5% annualized (SAAR) plunge of real GDP from 2Q, same as the preliminary estimate.  However, a 0.1% dip is now indicated for 2Q, so that puts Japan in technical recession.  Last quarter saw exports plummet 18.9% SAAR, non-residential investment dive 11.3% SAAR, and personal consumption slide 1.7% SAAR.  Inventories enhanced GDP growth by 1.0 percentage points, whereas net exports subtracted 2.8 ppts.  The GDP price deflator’s on-year drop of 0.8% was the least since 2009. 

Japan’s current account posted an unadjusted JPY 377 billion surplus in October, 29.4% less than a year earlier.  There was a merchandise trade deficit of JPY 340 billion, and exports were 6% below a year ago.  The seasonally adjusted current account surplus was 414 billion yen after a deficit of JPY 142 billion in September, and the basic balance, which combines the current account and long-term capital net flows, had a surplus of JPY 548 billion versus JPY 260 billion in October 2011.

Japanese bank lending recorded on-year growth in November of 1.0% after 0.8% in October and the third quarter.  Excluding trust accounts, loans were 1.3% higher than in November 2011.

Japanese consumer confidence weakened to a 11-month low of 39.4 in November from 39.7 in October and 40.1 in September.

Japan’s economy watchers index, a gauge of service-sector worker psychology and perceptions, recovered a full point to a reading of 40.0 in November from a 17-month low posted in October.  The reading was as high as 50.9 last April and 45.0 in November 2011.

According to a Japanese quarterly survey, business sentiment weakened 7.7 points to a negative reading in 4Q of -5.5.  For manufacturers, there was a swing from +2.5 in 3Q12 to -10.3 in 4Q.  Better results are foreseen in the first half of 2013. 

Japanese stock and bond transactions generated a JPY 523 billion capital outflow in November.  Japanese residents purchased JPY 1.5 trillion of foreign bonds.

China also released many economic indicators for November.

  • Most notably, the trade surplus narrowed to a six-month low of $19.63 billion and was 27% smaller than projected.  On-year export growth of 2.9% was down from 11.6% growth in October.  Imports were unchanged on-year, their second lowest growth since February.
  • Retail sales grew 14.9% on year, beating forecasts and constituting the biggest gain since March.
  • Industrial production was 10.0% greater than a year before, the same on-year advance as posted in October.
  • Fixed asset investment in January-November was 20.7% greater than a year earlier, the same increase as in January-October.
  • Consumer price inflation accelerated to a 3-month high of 2.0% from 1.7% in October and 1.8% in September.
  • A 2.2% drop in producer prices from a year earlier was the smallest on-year drop since June’s decline of 2.1%.

The Sentix measure of investor sentiment toward the euro area rose two points to a negative 16.8 reading in December, highest since April.  This gauge bottomed out in June at minus 29.6.

Revised data confirmed that Italian GDP slid 0.2% in the third quarter following drops of 0.7% in 2Q12 and 4Q11 flanking a 0.8% contraction in 1Q12.  Consumption and business investment dropped 1.0% and 0.8%, respectively, and GDP was 2.4% below its year-earlier level.

Italian industrial production sank 1.1% on month and 6.2% on year in October, while French industrial output posted drops of 0.7% from September and 3.6% from October 2011.  Greek industrial production slumped 6.5% on month but in on-year terms swung into the black with a 2.0% gain. Finnish industrial production was 2.4% weaker in October than a year earlier.  Swedish industrial output was 4.4% lower than in October 2011, while Czech production recorded a 4.1% decline from October 2011.

The German current account surplus of EUR 13.6 billion and trade surplus of EUR 15.8 billion in October were closed to analyst expectations, albeit lower than September results.  The seasonally adjusted merchandise trade surplus of EUR 15.3 billion was down from a monthly mean of EUR 17.1 billion in the third quarter.  Exports rose 0.3% on month and 10.6% on year.  Exports in January-October were 4.8% greater than a year before, topping a 1.7% year-to-date rise in imports.

Norwegian CPI inflation held steady at 1.1% in November.  Producer prices dropped 0.4% on month and were unchanged on year.  Danish CPI inflation remained steady at 2.3% in November.  Denmark had current account and trade surpluses in October of DKK 9.7 billion and DKK 6.6 billion.

Ireland’s construction purchasing managers index was steady in November with a sub-50 score of 42.6.

Russia’s central bank cut its overnight deposit rate by 25 basis points to 4.5%, while leaving its key refinancing rate unchanged at 8.25%.

Turkish on-year GDP growth was nearly halved from 3.0% in 2Q12 to 1.6% in the third quarter.  Turkish industrial production fell by 2.6% on month in October and 5.7% from October 2011.

In Australia, home loans ticked only 0.1% higher in October, and the 12-month increase of investment loans slowed to 5.5% from 8.8%.  New Zealand’s manufacturing activity index posted a 1.6% increase in the third quarter, best since 2Q11.

No U.S. indicators are scheduled today.  The main U.S. event of the week will be the FOMC policy announcement and press conference on Wednesday.  Fiscal cliff talks continue.  It’s very hard to tell how these negotiations are really going.  Canadian housing starts arrive today. 

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

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