Markets Remain Extraordinarily Volatile

May 7, 2010

The dollar advanced 2.0% against the yen and 0.9% versus sterling but has slipped back 1.2% against the euro, 0.8% versus the Aussie dollar, 0.6% relative to the Canadian dollar and Swiss franc and 0.3% against the kiwi.  Compared to end-April levels last Friday, the dollar has strengthened over 4% against the euro and pound, 3.6% versus the Aussie dollar, almost 3% against the Swiss franc and Canadian dollar, and nearly 2% against the kiwi, but it’s off 1.7% against the yen.

Asian stocks were clobbered further, with declines of 3.1% in Japna, 2.5% in Indonesia, 2.2% in South Korea, 2.1% in China and Thailand, 2.0% in Australian, 1.8% in New Zealand and Pakistan, and 1.1% in Hong Kong.  The Paris Cac, German Dax, and British Ftse have lost 1.4%, 0.9%, and 0.5%.

Ten-year bund yields are nearly 20 basis points lower.  JGB’s firmed a single basis point.  Gilts are up 8 bps after election results failed to give the Tories a parliamentary seat majority.  The Conservatives needed to get 326 or more seats but instead took 291 to Labour’s 251 and the Liberal Democrats’ 51.  The leader of the Liberals said Tory leader Cameron ought to have the first chance to form a government by virtue of winning a seat plurality.  The decision is up to the Queen.  In any case, investors fear the government will lack the power to enact sufficient budget cuts.

Finance ministers and central bankers of the Group of Seven are holding a teleconference and reportedly plan to issue a statement expressing confidence in Spain and Portugal.  Parliaments in France and Italy have approved the aid package to Greece.  German lawmakers are debating the issue.

Gold appreciated 0.5% and is above $1200 at $1202.70 per ounce. Oil rebounded 1.0% to $77.85 per barrel.

British output producer prices jumped 1.4% on month in April and accelerated to a 12-month increase of 5.7% from 5.0%.  Core PPI-O inflation rose to 4.4% from 3.7% in March.  The producer input price index also rose more than forecast, climbing 0.6% on month and to 13.1% on year from 10.3%.  British car sales recorded a smaller on-year increase of 11.5% in April after 26.6% in March.

German industrial production growth in March of 4.0% was nearly three times greater than forecast despite a 5.8% drop in energy.  Construction soared 26.7%, and factory output climbed 3.4%.  Industrial production firmed 0.8% last quarter or 3.4% at an annualized rate.  Other parts of Europe released figures pointing to increased economic momentum at the cusp between the first and second quarters.

France posted a EUR 4.73 billion trade surplus in March, 31.4% wider than in February.  Exports (2.5%) and imports (5.5%) rose briskly on month.  The French budget gap in the first quarter amounted to EUR 28.9 billion.

In the Nordic region of Europe, Norwegian industrial production fell 1.8% in March and was 5.0% lower than a year earlier.  Danish Industrial output ticked up 0.1% in March.  Swedish industrial output rose 4.0% in March (6.7% on year) and 1.6% in the first quarter.  Swedish industrial orders advanced 4.2% in March and 24.0% from a year earlier.

Greek CPI inflation accelerated to 4.8% in April.  Czech industrial production accelerated to a 12-month increase of 10.2% in March, a 29-month high, from 7.0% in February.  Czech retail sales increased 0.5% in March and 3.9% from a year before.  The Czech trade surplus widened 26.4% between February and March.  Romanian industrial output grew 3.6% in March.

Swiss real retail sales accelerated to a 12-month growth rate of 4.4% in March from 2.7% in February.  Swiss unemployment dipped to 4.0% in April from 4.2% in March.

The U.K. Halifax house price index dipped 0.1% on month in April and remains 16% below its August 2007 peak.  However, the index in Feb-April was 6.6% higher than a year earlier, and the April-over-April increase was 8.7% compared to a 17.7% drop in the prior statement year.

Japan’s monetary base accelerated to on-year growth of 2.9% in April from 2.1% in March but was similar to the gain of 3.1% in the first quarter.

Taiwan enjoyed a $2.2 billion trade surplus in April, with on-year export growth of 47.8%.

The Reserve Bank of Australia released its quarterly Monetary Policy Statement, which was hawkish in tone with forecast growth of 3.25% in 2010 and 3.75-4.0% thereafter and a forecast that core CPI would trough in the top half of the 2-3% target range, not the middle as assumed earlier.  However, the statement noted that variable lending rates have risen even more than the 150-bps climb of the Official Cash Rate and are presently in line with long-term averages.  Thus, policy can pause for now.

Canadian jobs shot up 109K last month, their biggest gain in 92 months, and have risen 285K since July 2009, a 2.3% annualized rate of increase.  The unemployment rate in Canada eased another tenth to 8.1%, lowest since April 2009.  The jobless rate crested last year at 8.7%.

Investors await the April U.S. jobs report at 12:30 GMT.  A strong report is expected, but markets are currently preoccupied with Europe’s debt crisis and the risks it will spread.  U.S. consumer credit numbers arrive also today.

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

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2 Responses to “Markets Remain Extraordinarily Volatile”

  1. GVI john says:

    Larry- Do you know of any way to expel an existing member from the Eurozone?

    I assume that any country can decide to pull out at any time on their own. Who’s going to stop them? E-Z has always been a flawed experiment and now it has failed. I would not be surprised to see it reconstituted as a group of the strong, but linking France and Germany also has its problems imho.

  2. larrygreenberg says:

    No, I do not recall the Maastricht Treaty providing a mean to throw somebody out of the currency union, and the deterrents against members choosing to drop out are the steep market-driven costs that would follow. Understand that the European Monetary Union was conceived for foreign policy reasons and enacted despite objections on economic grounds. The treaty by intent made it harder for countries to leave by no addressing that contingency. That’s actually not surprising. You will not find any clause in the U.S. constitution laying out a procedure for a state or states to leave the union, and that possibility is not mentioned. When the confederate states tried to establish a precedent in 1861, America’s worst war ensued.