Conflicting Signals From Europe

April 22, 2010

The dollar has appreciated 0.4% against the euro and Swissy, 0.2% versus the Canadian dollar and 0.1% relative to sterling and the Australian dollar.  The greenback has dipped 0.2% against the yen and 0.1% versus the kiwi.

The Nikkei slumped 1.3% and again fell below 11K, while stocks in Greece got hammered 2.4%.  Equities have weakened 1.1% in China, 1.0% in France and Australia, 0.8% in Germany and Britain, 0.5% in South Korea and New Zealand, 0.3% in Hong Kong and 0.2% in Taiwan.  Not all bourses are lower, however.  There were gains of 1.0% in Sri Lanka, 0.6% in India, 0.5% in Indonesia, and 0.4% in Singapore and Thailand.

Ten-year Greek sovereign debt yields soared to 8.564%, widening their premium over bunds to around 550 basis points.  Half a million Greek workers are protesting budget cuts.  New Eurostat estimates show that Greece’s deficit equaled 13.6% of GDP in 2009, up from 7.7% in 2008, and a debt to GDP ratio of 115.1% after 99.2% in 2008.  Ireland posted a deficit ratio of 11.8% after 7.3%, and its debt ratio jumped to 64.0% from 43.9%.  Portugal recorded a 9.4% deficit ratio in 2009, 3.4 times greater than in 2008, and a debt ratio of 76.8 versus 66.3% in 2008.  Spain, the euro area’s fourth largest economy, had deficit and debt ratios in 2009 of 11.2% and 53.2%, while Italy — the third largest member — had ratios of 5.3% and 115.8%.  Belgium’s debt ratio was 96.7%, and both Germany’s of 73.2% and France’s of 77.6% surpassed 70%.

The whole Euroland area posted a fiscal deficit of 6.3% of GDP in 2009 after 2.0% in 2008 and 0.6% in 2007 and a debt ratio of 78.7% in 2009 versus 69.4% in 2008 and 66.0% in 2007.

Ten-year German bund and Japanese JGB yields are one and two basis points lower than yesterday.

Oil and gold prices eased by 0.6% and 0.5% to $83.21 per barrel and $1143.60 per troy ounce.

Flash euro area purchasing manager survey readings for April surpassed expectations but also revealed a build-up of inflationary pressure that will not go unnoticed by ECB officials.

  • Euroland’s preliminary composite PMI rose 1.4 points to 57.3, best since August 2007, the month the world financial market crisis began.  The scores for manufacturing of 57.5 and services of 55.5 were up by 0.9 and 1.4 points and constituted 46-month and 30-month peaks.  Factory output was near a 10-year high.  Business expectations among service sector firms had their liveliest reading since January 2006.
  • Germany’s composite index improved 0.4 to a 32-month high of 59.1, with a record high manufacturing reading of 61.3 and a 30-month reading on service sector activity.
  • After a slowdown in 1Q10, France’s composite PMI leaped back to 58.4 in April from 55.8 in March as services rose four full points to 57.8 and manufacturing advanced to a 45-month high of 56.7.

British retail sales growth of 0.4% in real terms on month in March and 2.2% on year was somewhat less than forecast.  Sales fell 1.7% in the first quarter of 2010 after gaining 1.5% in 3Q09 and 0.6% in 4Q09.  The U.K. also reported record public sector net borrowing of Gbp 23.5 billion in March, the final month of the fiscal year, and weaker on-year M4 growth of 3.5% in March after 3.9% in February.  The full-fiscal year PSNB was Gbp 152.8 billion, 75.8% wider than in the prior year.  The U.K. debt ratio now stands at 62.0% of GDP, up from 52.9% a year ago, 36.0% in March 2007, and 29.7% eight years ago.  Eurostat data put Britain’s deficit-to-GDP ratio in calendar 2009 at 11.5%.

British mortgage approvals increased a bit more than forecast to 52,000 in March from 47K in February.  The CBI industrial trends monthly survey reading for total orders rose a point to minus 36.

The ZEW index of investor sentiment toward Switzerland settled back to 53.4 in April from 53.8 in March.  The Swiss trade surplus widened 56% on month to Chf 2.01 billion in March.  From a year earlier, export volumes rose 1.4%, while imports dropped 2.2%.

French business sentiment, according to the INSEE statistical agency, improved to 96 in April from 92 in March.  Analysts projected a 95 reading.  Dutch unemployment of 5.8% in March exceeded expectations.

The central bank in the Philippines kept its policy interest rate at 4.0%, but a top officials suggested it may get raised at the next meeting.

Japan’s customs clearance trade surplus of Y 949 billion compared to a tiny deficit a year earlier and lifted the fiscal surplus to 5.233 trillion yen versus a Y 765 billion deficit in fiscal 2008/09.  Exports leaped 43.5% overall and by 29.5% in bilateral trade with the United States.  Imports rose 20.7% on year but just 2.6% in trade with the United States.  The seasonally adjusted trade surplus of Y 666 billion was 41% bigger than February’s surplus.

Japanese supermarket sales were 6.6% lower in March than a year earlier compared to an on-year drop of 2.4% in February.

The credit rating agency Fitch released a critical report, warning of excessive Japanese debt levels and trends.

Australian motor vehicle sales fell 2.7% in March but were 19.2% greater than a year earlier.

Taiwan’s jobless rate slid to 5.67% in March from 5.76% in February.  Hong Kong on-year CPI inflation of 2.0% in March was as expected.

South Korean officials now allege that a naval ship of theirs was sunk last month by a North Korean torpedo.

Considerable U.S. data get released too on this busy day, including weekly jobless claims, the FHFA house price index, and existing home sales.  The Canadian index of leading economic indicators arrives and, more importantly, so does the Bank of Canada’s comprehensive Monetary Policy Report.  IMF/EU talks on the Greek fiscal problem continue in Athens.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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