New Overnight Developments Abroad: Concern Over European Banks

July 29, 2009

Chinese stocks, down 5.3%, posted their sharpest daily drop in eight months.  Elsewhere in the Pacific Rim, equities fell by 2.4% in Hong Kong, 1.3% in Indonesia, 1.1% in Vietnam, 0.7% in Malaysia where Bank Negara is expected to leave the benchmark interest rate at 2%, 2.1% in Pakistan, 0.9% in New Zealand, and 0.6% in Australia.  The Japanese Nikkei firmed 0.3%, however, and in Europe, the German Dax (+1.5%), Paris Cac (+1.3%) and British Ftse (+0.8%) have also risen.

The dollar is unchanged against the euro but higher otherwise, with gains of 0.8% against the Aussie dollar, 0.3% versus the Canadian dollar, 0.2% against sterling and the kiwi, and 0.1% against the yen and Swissy.

The yield on 10-year JGBs fell as low as 1.365% but is now at 1.38%, off 1 basis point on balance.  Most other sovereign debt yields are lower, too, as risk aversion returns.

Oil slumped 2.3% to $65.66 per barrel, 8.2% below its June 29th close.  Gold eased 0.4% to $937.90 per ounce.

Japanese retail sales were weaker than expected in June, sliding 0.3% from May and posting a tenth consecutive on-year decline (minus 3.0%).  Large-store sales fell 6.7% between June 2008 and June 2009 and also between 2Q08 and 2Q09.

The Shoko Chukin index of small business sentiment in Japan improved for a fifth straight month to 41.1 in July from 38.0 in June.  the index averaged 34.3 in 2Q and 26.7 in 1Q and had its lowest reading of 24.8 in January.

The prestigious IFO Institute warned that restrictive bank lending may hinder recovery in Germany.

Six German states reported lower-than-expected July CPI data.  In three states, consumer prices fell monthly, and such were unchanged in the other states.  Compared to July 2008, the CPI fell by 0.9% in Hesse, 0.7% in in North Rhine Westphalia, 0.2% in Bavaria and 0.6% in the other three states.  The ECB has predicted that negative on-year inflation will be temporary and said that such is already factored into monetary policy.

Italian business sentiment rose to an 8-month and higher-than-expected 71.7 reading in July from 69.8 in June.

French producer prices increased 0.6% in June, reflecting higher energy costs, but fell 8.7% from a year earlier.

Spanish retail sales climbed 2.4% in June, trimming the 12-month drop to 3.0% from 8.1% in May.

The Bank of England released mixed data.  While 47.6K mortgage applications in June were 7.7% greater than the May total and at a 14-month high, net lending to consumers sank to a lower-than-assumed Gbp 414 million, which was the lowest level since at least 1993.  Consumer credit went up merely Gbp 71 million.  On-year growth in M4 for June was revised downward to 13.8% and was less than the 16.3% pace in the year to May.

In Eastern Europea, producer prices in Hungary dipped 0.1% in June but rose 6.6% on year, more than their 6.2% advance in the year to May.  Economic sentiment in Slovakia improved to 70.2 in July from 67.6 in June.  Poland’s central bank meets today to decide monetary policy.

New Zealand business sentiment shot up to a 7-year high of 18.7% in July from 5.5% in June.  But building permits were 9.5% lower in June than a year before, the first on-year drop in 3 months.

Officials in China and the United States promised to sustain stimulus to ensure recovery.

U.S. data releases today include durable goods orders and the Fed’s Beige Book.  Central banks in Poland and Malaysia are scheduled to make interest rate announcements and are likely to leave policy unchanged.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.


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