Some Second Thoughts about the European Stress Tests

July 26, 2010

The euro dipped 0.1% against the dollar, which otherwise shows losses of 0.5% against sterling, 0.3% against the yen, Swissy, and kiwi, 0.2% against the Canadian dollar, and 0.1% relative to the Australian dollar.  They Chinese yuan was again unchanged against the dollar.

Equities in the Pacific Rim rose by 0.9% in South Korea and Thailand, 0.8% in Japan, and 0.6% in Australia and China but fell 0.6% in Indonesia and India.  Stocks are hardly changed in Europe.  The German Dax is off 0.2%, the Paris Cac is up 0.1%, and the British Ftse is steady.

Ten-year British gilt and Japanese JGB yields dipped by one basis point apiece.

Oil is 0.5% softer at $78.55 per barrel. Gold firmed 0.1% to $1188.90 per ounce.

Were the European stress test results too good to be true?  Many analysts think the assumptions were not rigorous enough and that banks are not mandated to fortify their reserves by as much as they really should.  Getting past the stress tests was a tonic for equity markets around the world, just as the U.S. stress tests in early 2009 had been.  Question now is whether stocks continue to rally.

Australian producer prices went up only 0.3% in the second quarter, a third as much as expected and as happened in the first quarter.  Import prices slid 0.1%, and domestic producer prices only firmed 0.4%.  The 12-month PPI rate of 1.0% last quarter compared to minus 0.1% in the first quarter and +2.1% in 2Q09.

Japan’s customs-basis trade surplus of JPY 687 billion in June was 41.1% wider than a year earlier.  However, on-year growth in export volumes continued to recede, reaching 27.4% compared to 31.9% in May, 39.5% in April, and 43.7% in the first quarter.  The trade surplus was 45.7% wider versus other Asian nations and up 42.1% in trade with the United States but only 1.5% greater versus the EU.  Seasonally adjusted imports (down 4.4%) and exports (off 1.8%) each were less than in May.

South Korean real GDP growth of 1.5% not annualized last quarter surpassed market expectations.  Taiwanese M2 in June exceeded its year-earlier level by 5.8%.

The British Hometrack house price index eased 0.1% on month in July, recording a gain of 2.0% from a year earlier.

Sweden’s trade surplus of SEK 11.4 billion was 32.5% smaller than a year earlier in June.  Imports advanced 27.7%, while exports rose 16.6%.  The seasonally adjusted June trade surplus of SEK 4.7 billion matched the surplus in May.

The Conference Board’s euro area index of leading economic indicators rose 0.5% in June, exactly reversing May’s drop.

Hungarian retail sales in volume terms were 4.7% lower than a year earlier in both May and in the first five months of this year.  Czech business sentiment improved three points to 11.6 in July.  Consumer confidence, by comparison, only advanced by two-tenths of a point.

U.S. new home sales and the Dallas Fed index get reported later today.  A central bank interest rate decision is awaited in Israel.

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



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