Awaiting ECB Press Conference and British Election Outcome

May 6, 2010

A lot is happening….

Asian stocks were hammered.  A 3.3% drop in the reopened Japanese Nikkei was the largest decline since March 30, 2009.  Chinese stocs fell 4.6% to an 8-month low.  Equities dropped 2.2% in Australia, 2.0% in South Korea, 1.5% in Thailand and Taiwan, 1.3% in Indonesia, 0.7% in Singapore and 0.6% in India.  But European stocks got a lift from strong German orders data.  The Dax and Cac40 show gains of 0.6%.  The Ftse is 0.2% higher.

The New Zealand kiwi has advanced 1.3% against its U.S. counterpart, buoyed by upbeat comments about the economy from the central bank governor after news that the jobless rate fell to 6.0% last quarter from 7.1% in 4Q09.  Such was the largest quarterly improvement in 24 years.  Otherwise, the U.S. dollar has slid 0.5% against the Swiss franc and 0.1% versus the yen and Australian dollar, while rising by 0.3% against the euro, 0.2% relative to sterling and 0.1% versus the Canadian dollar.  The euro touched an overnight low of 1.2735, 4.3% lower than at end-April, 5.7% weaker than at end-1Q10, and down 11.1% from end-2009.

The yields on ten-year German bunds and British gilts each climbed four basis points.  That on JGBs of the same maturity dipped one basis point.

Gold advanced 0.7% to $1182.70 per ounce.  Oil is steady just below the $80 per barrel level.

German industrial orders soared 5.0% in March and 28.5% at an annualized rate during the first quarter.  Both domestic demand (+5.4% from February and 26.1% from a year earlier) and export orders (+4.7% on month and +22.8% on year) were firing strongly in March.  Domestic orders for capital goods, a leading gauge of business investment, increased 5.3% on the month and by 8.2% (not annualized) in 1Q from 4Q09.

Europe is not recovering evenly, however.  Industrial production in Hungary slid 0.4% in March after a 1.5% drop in February.  Traders await the ECB press conference, which begins at 12:30 GMT.  In advance, Bundesbank President Weber, a leading contender to follow Trichet as ECB president, has voiced opposition to outright buying of euro area bonds by the ECB.  There’s been some rumors that Trichet might announced quantitative easing.  Weber’s remarks seems to suggest the rumors will prove wrong.  However, the ECB has made some U-turns already, such as acquiescing to the acceptance of Greek bonds as collateral even if such are at junk status. 

Contagion risks in Portugal and Spain remain high.  Italy and Ireland are other worries.  Germany’s finance minister warned against a restructuring of Greek debt.  Moody’s issued a warning about the crisis spreading to other peripheral members of the euro area.  The leaders of Germany and France wrote in Le Monde about their determination to preserve stability in Euroland.

Regional elections on Sunday in North Rhine Westphalia could cost German Chancellor Merkel to lose control of the upper house of parliament, the so-called Bundesrat where seats are allocated by state legislatures.

Britain’s 650 parliamentary seats are up for grabs today, with opinion polls suggesting a minority Conservative Party government.  It’s not clear if Labour or the Liberal Democrats will take the fewest popular votes.

The U.K. services PMI unexpectedly fell to 55.3 in April from 56.5 in March and 58.4 in February.  The Icelandic volcanic ash cloud was a negative factor in the month. 

Japan reported a composite PMI score of 51.8 in April, up from 50.3 in March which had been the first above-50 reading since August 2009.  The services PMI reading of 50.2 was 1.9 points greater than in March and up from 44.6 in February and 43.2 in January.  That was the first reading above the 50-line between expansion and contraction since December 2007.  Japanese motor vehicle sales were 34% greater in April than a year earlier.

China’s composite PMI slid to a still-robust 57.7 in April from 58.4 in March.  The service-sector purchasing managers index printed at 58.5 after 58.7 in March.

On-year export growth in India of 54% in March was the highest in over a year.

The Russian service-sector PMI was 56.9, near the long-term mean average of 56.7, and above a reading of 53.6 in March.

Germany’s construction-sector PMI posted the first reading above 50 since February 2008, a gain to 51.4 from 45.1 in March and 28.9 in February.

Swiss consumer prices rose 0.9% last month after 0.1% rises in February and March.  On-year CPI inflation stayed at 1.4%.

Australian retail sales rose by a disappointing 0.3% in March after dropping 1.2% in February.  The volume of retail sales eked out a 0.1% uptick.  The Aussie trade deficit widened to AUD 2.082 billion in March from AUD 1.701 billion in February and AUD 0.951 billion in January.  Imports grew twice as much on month as exports.  The Reserve Bank of Australia lifted its cash rate earlier this week but signaled a pause in the immediate future.  The Australian dollar has been depressed this week by a proposal to impose a tax on mining.

Scheduled U.S. data today include productivity, unit labor costs, monthly chain store sales and weekly jobless claims.  The IVEY-PMI index and building permits arrive in Canada.  Interest rate decisions are awaited in the Czech Republic and Peru as well as from the ECB.

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

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