Doubts Return on European Debt

May 11, 2010

Equities have swooned.  In a familiar pattern, the EUR 750 billion EU/IMF standby credit for ending the Euroland sovereign debt crisis produced only fleeting hope.  One concern is that all governments will not pass laws ratifying the accord.  Another is that the deal only postpones defaults.  A third is that the ECB’s purchase of bonds could prove inflationary.  Stocks fell by 2.0% in China, 1.4% in Hong Kong, 1.3% in Indonesia, 1.1% in Japan, Australia and India, 0.9% in Thailand, and 0.8% in Singapore.  In Europe, the Paris Cac and British Ftse have so far plunged 1.9% and 1.7%, while the Dax is 1.0% weaker.  U.S. stock futures have fallen, too.

In Britain, talks between the Conservatives and the Liberal Democrats remain snagged over the issue of election reform.

In further signs of elevated risk aversion, the yen strengthened 1.0% against the dollar, which otherwise appreciated 0.8% against the euro, 0.7% relative to the Aussie dollar and sterling, and 0.6% against the kiwi.  Gold advanced 0.9% to $1211.2 per ounce, and the dollar is steady against the Swiss franc.  Oil eased 1.4% to $75.73 per barrel.  The Canadian dollar is unchanged. 

The yield on ten-year bunds retreated seven basis points, while that on gilts rose 0.6%.  The JGB yield is unchanged.

Stocks in China have fallen more than 20.0% since November 23, making this cycle of loss an officials bear market.  The latest selling impetus came from Chinese data released overnight as well as European sovereign debt concerns.

  • Chinese CPI inflation accelerated more than expected to 2.8% in April from 2.4%.  Likewise, PPI inflation picked up to 6.8% from 5.9% in March, 5.4% in February, 4.3% in January, 1.7% in December and minus 7.0% last September.
  • Property price inflation posted a third straight on-year increase of more than 10%, a gain of 12.8% in the year to April after 11.7% in March and 10.7% in February.  Government curbs on property speculation haven’t yet hit prices.
  • New lending jumped by 774 billion yuan in April, 51.6% more than in March and equivalent to more than $110 billion. M2 increased 21.5% on year.
  • Retail sales on-year growth increased to 18.5% in April from 18.0% in March and 17.5% in December, and 15.5% last September.
  • Industrial production slowed, however, to 17.8% from 18.1% and was less than forecasts of an on-year advance of 18.5%.
  • Fixed asset investment in January-April was 26.1% greater than a year earlier, a sizable gain but less than the 30.5% increase in full-2009.

German wholesale prices jumped 1.7% in April following March’s 1.3% monthly increase.  On-year WPI inflation accelerated to 6.0% from 4.3% in the prior month, 0.2% in December and minus 7.0% in 2009.  Energy and food are largely to blame.  Consumer prices remain benign, dipping 0.1% on month and to a 12-month pace in April of 1.0%.  Non-energy consumer prices in Germany fell 0.3% last month and recorded only a 0.6% rise from April 2009.

British industrial production and factory output surprised on the upside with monthly gains in March of 2.0% and 2.3% following February’s increases of 0.9% and 1.4%.  Industrial production rose 1.2% last quarter but was unchanged from 1Q09.  Manufacturing posted first-quarter gains of 1.2% from 4Q09 and 1.5% on year.

According to British Retail Consortium data, same-store sales fell 2.3% in the year to April, reflecting the impact of a late Easter last year.  Total sales dipped 0.2%.  The Royal Institute of Chartered Surveyors reported a house price balance index of 17% in April, nearly double March’s reading of 6.3%.

The Swiss consumer climate index improved much more than anticipated to +14 in April from minus seven the month before.

Dutch consumer prices firmed 0.3% in April and 1.1% on year.  Airports in Iberia were again closed by volcanic ash in the atmosphere.

Swedish capacity usage jumped to 84.9% last quarter from 80.0% in 4Q09 and 78.0% in 3Q09.  Sweden reported lower CPI inflation than forecast for April.  The index was unchanged on month and up just 1.0% on year.  Core CPI was also flat on month and recorded a 2.2% gain from 12 months earlier.

Hungarian consumer prices increased 0.5% last month and by 5.7% from April 2009. Romanian consumer prices firmed 0.4% on month and 4.3% on year.

South Korea’s broad “L” money aggregate accelerated to a 12-month 10.7% pace of rise in March from 10.2% in February.  M2 rose 9.3% versus 9.4% on year in Feb.

Malaysian industrial production jumped 14.1% in the year to March, led by a 20.3% surge in factory output.

Turkey’s current account deficit of $9.9 billion last quarter was seven times larger than the deficit in the first quarter of 2009.

Australia’s budget envisages a return to surplus by fiscal 2012-13, much sooner than the government earlier had been predicting, but a proposed tax on resources is very unpopular.  Credit card spending in New Zealand fell 1.7% in April, the first drop in three months, following a 6.3% rise in March.

Scheduled U.S. data remains light today and includes the IBD/TIPP index of optimism and wholesale inventories.  Lockhart and Plosser of the Fed will be speaking for the record.  The Bank of Korea is not expected to announce a rate change after tomorrow’s meeting.

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



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