New Developments Abroad: Unexpected May Drop in German Orders

July 4, 2008

The dollar is unchanged against the euro and sterling, 0.1% weaker against the yen, Swissy and kiwi, off 0.2% against the C-dollar and -0.3% versus the A-dollar.

Ten-year sovereign bond yields have fallen by 3 basis points in Britain, 2.5 bps in Japan, and 2 bps in Germany.  The U.S. will be closed for Independence Day.

The Nikkei fell 0.2%, extending its losing streak to 12 straight sessions. Equities fell 0.7% in China and by 2.6% for the week, the seventh week of decline in a row.  Equities slumped 1.8% in South Korea but recovered 1.2% in Indonesia and by 1.7% in Australian.  In Europe, the Ftse is trading 0.9% lower, and the Dax and Paris Cac show losses of 0.5% and 0.6%.  The Dax has posted five weekly declines in a row.

Oil has retreated to $144.89/barrel from yesterday’s record peak of 145.84.  Gold is steady at $932.20 per ounce.

German industrial orders fell 0.9% in May on top of April’s 1.7% drop, which points to softening industrial output ahead.  Orders had been expected to rise 0.7%.  They had dropped 1.3% in 1Q08 and were 2.7% lower in April-May than the 1Q level.  This reversal from a 4.9% increase in 4Q07 has been most concentrated in capital goods, down 5.3% in April-May from 1Q.  Overall orders still managed to be 6.3% higher in April-May than a year earlier.

Various ECB officials, led by Bank President Trichet but including Weber, Mersch and Liebscher, verbally defended yesterday’s 25-basis point rate hike in what seems to be a coordinated protest against the market’s interpretation that the move may have been ill-advised and will be the last tightening.

Germany’s construction PMI improved from 45.6 in May to 47.4 in June, still connoting contracting activity.

Japan’s index of leading economic indicators (40.0 in May after 27.1 in April) has stayed below the 50 boom-or-bust line since last August.  The coincident and lagging indicators were also below 50 in May at 33.3 and zero.  Japan’s economics minister warned that surging oil prices and the U.S. slowdown are weighing on Japanese growth but said that a healthy corporate sector should enable the economy to avoid recession.


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