Market Crisis Intensifies

May 25, 2010

Stocks plummeted overnight by 3.5% in Hong Kong, 3.7% in Indonesia, 3.1% in Japan and Thailand, 3.2% in Taiwan, 2.8% in South Korea, 2.7% in India, and 1.9% in New Zealand and Malaysia.  In Europe, the Spanish IBEX, Paris Cac, German Dax, and British Ftse are down by 4.1%, 3.8%, 3.0%, and 2.9%.  Futures point to a 2% drop of U.S. stocks at the open.

Currency movements reflect resurgent risk aversion.  The dollar fell 0.9% to JPY 89.5.  Commodity-sensitive currencies were slammed, with the greenback showing gains of 2.2%, 1.8%, and 1.6% against the Australian, Canadian and New Zealand dollars.  The U.S. dollar has also advanced 1.4% against the woeful euro, and 0.7% relative to the Swiss franc and sterling.

Ten-year sovereign bond yields dropped nine, eight, and 5 basis points in Britain, Germany and Japan.

Oil prices fell 2.5% to $67.70 per barrel, while gold slid 0.5% to $1188.20 per ounce.

Fears of another Korean war were heightened as North Korea went on military alert.

Several Spanish banks failed yesterday.  Rumors surfaced of Russia’s central bank moving out of euros.

Treasury Secretary Geithner in Asia continued to back-pedal from putting any public pressure on Beijing officials to revalue the yuan.

In contrast to the market hysteria, data released today have been decent for the most part.

  • Industrial orders in Euroland leaped 5.2% in March on top of February’s 1.9% gain.  Orders were 4.1% greater than their 1Q10 average level.  Orders in 1Q advanced 3.4% from 4Q; that’s an annualized pace of 14.3%, up from 7.6% in 4Q09.  Orders in March were also 19.8% greater than in March 2009.  Such had dropped 14.8% in the year to October 2009, by comparison.  In March, orders posted monthly gains of 11.7% in Greece, 6.5% in France, 5.7% in Germany, 4.5% in the Netherlands, and 3.2% in Spain.
  • Italian retail sales increased 0.5% in March and 2.9% from a year earlier, easily beating expectations.
  • Dutch business sentiment improved more than forecast to a reading of +0.4 ion May from minus 1.4 in April.
  • British real GDP was revised up a tenth to show a first-quarter increase of 0.3%.  Consumption was unchanged versus an expected slide of 0.2%.  Investment climbed 1.5%, and government expenditures went up 0.5%.  Production climbed 1.2%, services rose 0.2%, but construction fell 0.5% in the quarter.  GDP was still 0.2% lower than a year earlier.  The GDP price deflator accelerated to an on-year increase of 3.6% from 1.4% in 4Q09.
  • Finland’s jobless rate of 9.3% in April was lower than projected.
  • The Swiss UBS Consumption Indicator rose to 1.763 in April from 1.682 in March, moving further above its long-term mean of 1.50.
  • South African real GDP accelerated to an on-year increase of 4.6% last quarter from 3.2% in 4Q09.

Not all the economic news was good, however.  Swedish unemployment of 9.3% seasonally adjusted in April is still cresting.  Consumer sentiment in Italy fell 2.5 points in May to 105.4, a one-year low.  Retail sales volume in Hungary fell 0.4% in March and by a greater-than-forecast 4.0% from a year earlier.  And Spanish producer prices increased 1.0% in April and accelerated to a 12-month climb of 3.7% from 2.4% in March.  Expected inflation in New Zealand rose marginally to 2.8% from 2.7% in the first-quarter survey.

Scheduled U.S. data today include weekly chain store sales, the Richmond Fed index, the Case-Shiller house price index, consumer confidence and the FHFA housing index.  Several Fed officials including Chairman Bernanke have speaking engagements.  Poland’s central bank will announce its latest interest rate decision, and no change in the 3.5% benchmark is anticipated.

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

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