New Developments Abroad
June 4, 2008
European stocks are sharply lower: Paris Cac -1.8%, Ftse -1.7% and Dax -1.4%. A lower U.S. open is indicated. Earlier, the Nikkei climbed 1.6%, but the Hang Seng fell 1.0%.
European bond yields are lower, whereas the 10-year JGB yield advanced by a further 3.5 bps to 1.775%, 8 bps above Tuesday’s lowpoint of 1.695%.
The dollar lost 0.7% against the Aussie dollar, 0.4% against the yen, 0.3% against the Swiss franc, 0.2% against the kiwi and 0.1% versus the euro. But the greenback gained 0.4% against sterling and 0.1% relative to the Canadian dollar.
Oil (-0.7%) and Gold (-0.5%) are lower at $123.45/bbl and $880.90/ounce.
In Japan, the Ministry of Finance’s quarterly business survey results were better than assumed. A smaller 4.9% on-year drop in investment after -7.7% previously suggests an upward revision to first-quarter GDP growth. But sales (-1.5% y/y) fell for the first time in 5 years. Profits rebounded to +7.5% y/y.
Australian GDP growth in 1Q of +0.6% and 3.6% y/y compared to street forecasts of +0.3% from 4Q and 2.8% y/y. Growth was led by a surge of defense spending, solid private investment, and a better-than-assumed 0.6% (4.1% y/y) rise of private consumption. Australia also reported a 2.2% drop in new motor vehicle sales during May.
Euroland real retail sales recorded a third consecutive drop in April. Sales slumped 0.6% after decreases of 0.2% in February and 0.9% in March. Sales fell 2.9% y/y, a series low. Declines of 1.7% in Germany, 1.3% in Portugal, nad 0.6% in Spain were mitigated by a 1.1% rise of sales in Finland.
Euroland’s PMI-services indicator printed in May at 50.6, same as the Flash report and down from 52.0 in April and 47.3 in May. Business expectations were at a 78-month low, while output prices reached an 11-month high. Euroland’s composite PMI (merging manufacturing and services) fell to 51.1 in May from 51.9 in April and 56.8 a year earlier. This was the lowest composite reading since July 2003. The service PMI readings for Spain of 43.3, Italy of 48.1, and France of 50.5 were each worrisome. German readings of 53.8 on services and 55.0 on the composite showed resiliency, but such is unlikely to persist. All in all, evidence is piling up of rapidly eroding economic momentum in Euroland, but high inflation rules out a rate cut soon.
The British PMI-services sank under 50 for the first time since March 2003, connoting contraction. It was at 49.8, down from 50.4 in April and 57.2 in May 2007. Input prices were at a series high, dating back to mid-1996, and a separate release of British shop prices revealed a sharp increase in food store prices to 6.0% y/y in May from 4.7% in April.
British consumer sentiment slid to a series low, dating back four years, of 69 in May from 70.
Obama’s delegate count went over the total needed for the Democratic Party nomination. Clinton did not bow out just yet, however.
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