Equities Strengthened in Asia and Europe

June 3, 2010

The dollar advanced 0.6% against the yen and 0.1% versus the Swiss franc, but the greenback has lost 0.8% against the Australian dollar, 0.6% relative to the New Zealand dollar, 0.2% against sterling, and 0.1% against the euro and Canadian dollar.

Japan’s Nikkei-225 jumped 3.2% despite a Finance Ministry corporate survey showing an 11.5% on-year drop in capital spending last quarter (minus 12.9% excluding software).  Investment has been dropping for three years.  Sales, however, rose 10.6% from 1Q09, and earnings were sharply higher.

Other equity markets have also taken an upbeat cue from yesterday’s rally in the United States.  Stocks gained 2.8% in Indonesia, 2.4% in Singapore, 2.3% in Taiwan, 2.2% in Thailand, 1.9% in South Korea, 1.7% in India, 1.6% in Hong Kong, and 2.4% in Australia.  In Europe, the British Ftse, Paris Cac and German Dax show gains of 2.3%, 2.1%, and 1.6%.  Even Spain’s IBEX is up by a sharp 1.8%. 

The U.S. stock market rise was triggered by better-than-expected data on Wednesday.  Scheduled U.S. data today are the ISM purchasing managers index for the service sector, the ADP estimate of private sector jobs, new weekly jobless insurance claims, factory orders, productivity and unit labor costs.

Ten-year sovereign debt yields have climbed five basis points in Britain and Germany and two bps in Japan.  The Greek yield exceeds 8.4%.  Bank of Japan policymaker Suda warned that the European debt crisis is becoming increasingly uncertain.  Canada’s finance minister called the global recovery fragile.

Oil firmed 0.6% to $73.30 per barrel, whereas gold prices are 0.4% lower at $1217.30 per troy ounce.

Many service-sector purchasing manager readings for May have been released.

  • Euroland’s composite index (services and manufacturing) printed at 56.4, two-tenths better than the flash estimate but down from a 32-month high of 57.3 in April.  The services PMI was 56.2, best since August 2007, after 55.6 in April, 54.1 in May and 51.8 in February.  The data imply Euroland will achieve in the second quarter its best quarterly growth so far in the recovery.
  • France is leading the euro area economy, with a composite PMI score of 60.1 after 59.2 in April and a services reading of 61.4 following 59.2 in April.  Both scores were revised down from their flash indications, however, and the regional sovereign debt crisis casts a shadow on future prospects.
  • The German services index slid to 54.8 from a 32-month high of 55.2 in April.  Orders rose more slowly for a third straight month.  The German composite index fell to 56.4 from 59.3 in April.
  • Italy’s service PMI printed at 53.7, lower than forecast and down from 54.5 in April and a 29-month high of 55.3 in March.  More price discounting was reported last month.
  • Irish and Spanish PMI reports indicate that recovery has trickled down to Euroland’s peripheral economies, but such may not last.  Ireland’s service PMI was 52.4, the second straight reading above 50 after 51.0 in April and a first-quarter mean of 47.6.  Spain’s index was 52.3, its third straight above-50 score versus readings of 47.1 in February, 48.8 in January and 45.0 last December.
  • China is cooling under policy supervision.  The service PMI of 56.4 was down from 58.5 in April and at a 14-month low.  The composite PMI dropped to 54.2 from 57.7.
  • Russia’s service-sector PMI slid to 55.9 from 56.9 in April, which had been the best score since July 2008.
  • India’s service PMI was 58.2, down from a 21-month high in April of 62.1 and on a par with 58.1 in March.
  • Hong Kong’s PMI declined to 53.2 from 55.3.
  • Japan’s PMI for services (47.5 after 50.2 in April) sunk below the 50 expansion-or-contraction line of separation.  The composite score was 50.5.
  • Brazil’s service PMI reading was 52.3, similar to April’s 52.2.
  • Australia’s service-sector PCI report printed at 47.5 after 52.3, reflecting the effects of six domestic central bank rate hikes and policy cooling in China.
  • The British PMI services reading of 56.4 was a tenth above April’s score but somewhat lower than forecast.

Euroland retail sales in April fell 1.2% on month, much worse than forecasts of a 0.1% uptick and in fact the largest monthly drop since October 2008.  This latest setback left sales volume 1.5% lower than a year earlier and 0.9% below the first-quarter average level.

Britain’s Nationwide house price index rose 0.5% on month in May and 9.8% on year.  While below April’s gains of 1.1% and 10.5%, respectively, these results exceeded analyst expectations.  House prices remain 9.5% below their peak in October 2007, however.

French unemployment of 9.9% last quarter was a bit lower than forecast.

Dutch consumer prices were unchanged on month in May and up 1.0% on year.

Romanian retail sales fell by 5.2% on year in April and by 7.5% in January-April.

Asian central banks in the Philippines and Indonesia left their key interest rates unchanged.  The uncertain impact on global growth of the European debt crisis was a factor in each decision.

  • The Filipino overnight borrowing rate has been at 4.0% since August 2009.
  • Indonesia’s key reference rate has been 6.5% for the past ten months.

Turkish consumer prices fell 0.4% in March versus an expected rise of that amount, which resulted in a 9.1% on-year increase.  The PPI dropped 1.2% last month but rose 9.2% on year.

Australian trade data for April revealed a rare and unexpected AUD 134 million surplus as exports surged 10.7% on month, while imports edged only 0.1% higher.  Exports were powered by a leap in mineral ore shipments.

South African business sentiment weakened to 82.0 in May from 84.2 in April.

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



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