New Uneasiness About European Public Finances

June 16, 2010

Officials denied market rumors of a big aid package being forged for Spain.  German 10-year bund yields rose 3 basis points, and spreads of Spanish, Portuguese, and Greek sovereign debt yields above bunds have widened to 219, 295, and 651 basis points.

The dollar advanced 0.3% against the euro and yen, 0.2% against the Canadian dollar and kiwi, and 0.1% versus the Aussie dollar, but the greenback has edged down 0.1% against sterling and the Swiss franc.

10-year gilt and JGB yields are unchanged.

Stocks rose 1.2% in Australia, 1.0% in Indonesia and Singapore, 0.7% in New Zealand, 0.8% in Thailand and 1.8% in Japan.  European bourses are holding small net gains of 0.4% in France, 0.3% in Great Britain, and 0.2% in Germany and Spain.

Gold prices firmed 0.2% to $1236.40 per ounce, while oil settled back 0.2% to $76.75 per barrel.

Obama confirmed order for an escrow account to cover BP damages.  Concern continues to mount about a possible new slowdown in U.S. growth.  Scheduled U.S. data releases today include housing starts and permits, producer prices, industrial production, capacity usage, and weekly oil inventories.  Bernanke and Plosser speak publicly today.

Australian housing starts rose 4.3% last quarter, down from an upwardly revised 15.8% gain in 4Q09 and a 11% increase in 3Q09.  Starts were 34.7% greater than a year earlier.  Australia’s index of leading economic indicators was flat on month and up by a diminished 7.6% on year in April after an 8.8% advance in the year to March.

Japan’s tertiary index of activity in the services sectors advanced 2.1% in April.  Coming after a 2.7% drop in March, the rebound was less than consensus expectations.   The tertiary index was only 1.4% greater than in April 2009 and unchanged from the first-quarter average level.  Machine tool orders in May were 192.5% greater than a year earlier.  The released monthly economic assessment of the Bank of Japan contained no surprises and basically reiterated the points in yesterday’s statement on monetary policy.  Further signs of moderate recovery are ascribed mainly to solid overseas economic conditions, and deflation is likely to lessen as Japan’s output gap diminishes eventually.

Turkish consumer confidence rose 0.9% in May.

Labor costs in the euro area were 2.1% higher in 1Q10 than a year earlier, which is an acceleration from a 1.7% on-year rise in 4Q09.

Euroland consumer prices rose 0.1% on month and 1.6% on year in May.  The 12-month increase compares to 1.5% in April, 1.4% in March 0.9% in February and 0.0% in the year to May 2009.  Core inflation ticked up to 0.9% from 0.8% in April but was the same as the reading in March and down from 1.5% in the year to May 2009.  This benign overall picture masks considerable differences between Germany (0.1% on month and 1.2% on year) and Greece (0.8% on month and 5.3% on year).

Switzerland’s ZEW index of investor expectations fell to 17.5 in June from 40.5 in May.

British unemployment on a claimant count basis fell by a greater-than-anticipated 30.9K in May and to less than 1.5 million for the first time in 14 months.  The claimant jobless rate of 4.6% was down from 4.7% in April and 5.0% in January.  On an ILO standardized basis, unemployment ticked up to 7.9% in the three months to April from 7.8% in 1Q10.  Wage earnings in April were only 0.9% greater than a year before, a sharp drop from a jump of 6.2% in the year to March, but the three-month series showed a smoother progression to 4.2% in Feb-April from 4.3% in Jan-March. 

Italian consumer prices firmed 0.1% in May and were 1.4% higher than a year earlier.  The Czech current account posted a CZK 12.4 billion surplus in April, while the Romanian current account deficit of EUR 2.06 billion in January-April was 40.3% larger than the shortfall accrued in the first four months of 2009.

In its first tightening, Chile’s central bank raised the key overnight interest rate by 50 basis points to 1.0%, twice as much as analysts were anticipating.

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



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