Japanese and European Stock Prices Head Lower

August 4, 2010

Equities fell 2.1% in Japan, 0.7% in Australia, 0.4% in Singapore and 0.1% in South Korea but firmed 0.6% in Indonesia and the Philippines.  In Europe, stocks have lost 1.2% in Great Britain and Spain, 0.7% in France, and 0.5% in Germany.  Today’s data focal points are various service sector purchasing manager readings and the ADP estimate of U.S. private jobs last month.

The dollar eased 0.4% against the yen, edging closer to the 85 per USD presumed threshold of pain.  The U.S. currency slid 0.1% against the Canadian and Australian dollars but firmed 0.1% against sterling, the euro, and Swiss franc.  The dollar is up 0.3% against the kiwi and unchanged against the yuan.

The yield on ten-year JGBs fell four basis points to 1.00% even.  The U.S. two-year continues to hover near a record low 0.53%.  Ten-year German bunds slipped two basis points, whereas 10-year gilts rose a basis point.

Oil prices retreated 0.8% but remain above $80 at $81.93 per barrel. Gold prices advanced 0.8% to $1196.80 per ounce.  The last close above $1200 was in mid-July.

Retail sales volume in the euro area was unchanged in June and just 0.4% greater than in mid-2009.  Retail sales fell 0.9% at an annualized rate in the second quarter after advancing 1.3% in the first quarter.  In June, retail sales dropped by 1.3% in France, 1.1% in Portugal, and 0.9% in Germany.

Euroland’s service sector purchasing managers index (PMI) for July was revised to 55.8 from a 56.0 flash indication.  Still, such exceeded June’s 55.5 and helped lift the composite PMI to 56.7 from 56.0 in June, suggesting annualized real growth near 3% at the start of the third quarter.  Growth disparities widened within the common currency bloc.

  • The German service PMI advanced 1.7 points to 56.5, best since the start of the financial crisis in August 2007.  Germany’s composite index had a reading of 59.0, 2.3 points better than in June.
  • In France, service sector activity is proving more resilient than manufacturing.  The service PMI of 61.1 was 0.3 points higher than in June in contrast to a 10-month low in the manufacturing index of 53.9.  The French composite PMI of 59.7 after 59.6 in June conveys considerable dynamism.
  • Italy’s service-sector PMI (49.6) dropped below the 50-no change line for the first time since November.  Such crested at 54.5 in April.
  • Spain’s index fell a half point to 51.3, but the level conveys little growth momentum in the euro area’s fourth largest economy.
  • The Irish PMI for services improved to 55.7 from 55.4 in June and 52.4 in May, but export orders worsened sharply to a score of 51.5 from 58.6 in June.

Britain’s service-sector PMI of 53.1 was the lowest reading in 13 months and down from 54.4 in June and 55.4 in May.  The U.K. Halifax house price index rose 0.6% in June and posted a higher-than-assumed 4.9% on-year increase in the second quarter.

Japan’s PMI-services index was below the 50 breakeven line for a third consecutive time, printing at 46.3 in July after 47.1 in June and 47.5 in May.  The Japanese composite PMI of 48.6 in July after 49.8 in June indicates trouble.  Market chatter persists that the Ministry of Finance could intervene if the yen penetrates 85 per dollar.

China’s PMI-services index recovered to 56.3 from 55.6 in June.  While a sub-50 reading was reported earlier for manufacturing, the composite index of 52.6 in July after 52.2 in June shows continuing overall economic growth and a desired rotation toward consumption away from investment.  Private input prices printed below 50 for the first time in 14 months, suggesting receding inflationary pressure.

India’s PMI-services index settled back to a still-sizzling 61.7 from a two-year peak in June of 64.0.  The composite index was 61.9 in July.

Australia recorded a third straight sub-50 reading in its services PMI, 46.6 after 48.8 in June and 47.5 in May.  The component for Australian sales slumped to 44.4 from 49.4 in June.

Russia’s PMI services index of 54.3 was below June’s reading of 55.4 and the long-term trend of 56.6.

The Hong Kong PMI index for service sector activity eased to 51.3 from 52.6 in June and 53.2 in May.  The orders index was less than 50, connoting shrinking demand.

Bank Indonesia as anticipated kept its benchmark interest rates unchanged at 6.5% even though inflation has poked above the central bank target.

The National Bank of Romania likewise did what analysts predicted, retaining a monetary policy rate of 6.25%.

Brazilian industrial production posted the biggest on-month decline since 2008, a 1.0% drop in June that left the 12-month increase at 11.1%.

Investors in the United States await the ADP private employment estimate, with predictions centered on another small increase of 35K.  The Institute of Supply Management will be releasing its July purchasing managers survey for non-manufacturing at 14:00 GMT.

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

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