Stocks Closing Out a Bad Month on a Weakening Note

August 31, 2010

Japan’s Nikkei tumbled 3.6%, extending August’s loss to 7.5% and the decline since April 26 to 21%.  Stocks also fell 1.0% in Hong Kong and South Korea, 1.6% in Taiwan, 1.1% in Australia, and 0.6% in India.  In Europe, the Paris Cac and British Ftse are down 0.9%, and the German Dax has lost 0.7%.

The dollar fell 0.7% against the Swiss franc and 0.2% against the yen and euro.  It gained 0.2% against sterling and the Australian dollar and 1.0% relative to the kiwi but eased 0.1% against the Canadian dollar.

The Chinese yuan retreated another 0.1% against the dollar and at 6.8092/USD has gained only 0.2% on balance since a more “flexible” currency policy was unveiled with great fanfare on June 19.

Ten-year British gilt yields fell eight basis points, and the 10-year JGB yield is six basis points lower.  Bund yields dipped two bps.

Oil and gold prices fell by 1.4% and 0.3% to $73.64 per barrel and $1235.0 per ounce.

A considerable number of economic indicators were released overseas on the final day of August, and North America has a heavy slate of data today, too.

From Japan, it was reported that

  • The manufacturing purchasing managers index fell 2.7 points to 50.1 in August, essentially conveying stalled activity.  Export orders tumbled 4.5 points to 50.9 in a sign that the elevated yen is inflicting increasing pain.
  • Industrial production in July recovered only 0.3% after falling 1.1% in June.  While output was 14.8% greater than in July 2009, it was 0.4% softer than the average level in the second quarter.  Survey data, which can often be unreliable, point to increases in production of 1.6% in August and 0.2% in September.  The inventory ratio rose 1.5% in the latest reported month.
  • Total retail sales were 3.9% greater in July than a year earlier, but large-store sales dropped 1.2% on year.
  • Small business sentiment edged up 0.3 to 48.4 according to the August Shoko Chukin index.  A marginal dip is anticipated in September.
  • Housing starts and construction orders in July posted on-year changes of +4.3% and minus 0.7%.  A 1.9% rise was projected in each case.
  • Motor vehicle output was 16.8% greater in July than a year earlier, down from on-year growth of 25.9% in June.
  • Wage earnings posted on-year growth of 1.3% in July, down from 1.8% in June.

The purportedly corrupt Ozawa refuses to drop his challenge for the leadership of the ruling Democratic Party in Japan.  Prime Minister Kan is heavily preferred according to public opinion polls, but Ozawa has lined up enough support among DPJ parliamentarians to make him the favorite to win the contest on September 14.  Either way, macro-economic policy and the effort to contain yen appreciation are bound to be compromised.  Japanese Finance Minister Noda again said decisive action on the yen will occur when needed.

Euro area unemployment held at 10.0% for a fifth consecutive month in July.  The preliminary indication for August consumer price inflation in the common currency area is 1.6%, down from 1.7% in July.  The retail-sector purchasing manager index fell to 49.7 in August from 52.4 in July, which had been a 27-month high.  The German retail PMI plunged 8.8 points to 48.4, and the French index dropped 0.9 points to 51.9.  Italy’s retail PMI rose 3.0 points to 48.3.  Like other diffusion indices, a score of 50 divides expansion from contraction.

Indian real GDP growth accelerated from an on-year 8.6% in the first quarter to 8.8% in 2Q, most since the final quarter of 2007.

Italian business sentiment unexpectedly improved to a 28-month high of 100.5 in August compared to 98.3 in July and forecasts that such would be about 98.5.  Retail sales in Italy firmed 0.3% on month and 0.5% on year in June.

German unemployment fell by 17K in August, and the jobless rate held steady at 7.6% on both a seasonally adjusted and unadjusted basis.  Job vacancies rose 4K after a 13K increase in July.  Employment was 0.3% higher in July than July 2009, up from a 0.2% on-year advance in 2Q10.

The UBS Swiss consumption indicator advanced to 1.86 in July from marginally less than 1.80 in June.

British M4 in July rose 0.4% on month and by a reduced 2.3% on year after 3.1% in the year to June.  Net lending to individuals grew by a meager Gbp 0.3 billion in July, with mortgage lending and consumer credit edging up Gbp 0.1 billion and Gbp 0.2 billion, respectively.  Mortgage approvals totaled 48.7K, a touch better than June’s 48.6K.

British consumer confidence improved six points to minus 18 in August, surprising pundits who looked for a modest further deterioration.  A gauge of expected U.K. CPI inflation in the coming twelve months edged up two-tenths to 2.9% in the latest survey taken this month.

Hungarian producer prices rose 0.2% and 8.7% on year in July.

The Russian central bank left its benchmark interest rate at 7.75%.  No surprise there.

Australia released the following data:

  • Retail sales increased by a better-than-forecast 0.7% in July and 3.8% from a year earlier.
  • July private-sector credit firmed 0.1% and 2.8% on year.
  • Building permits advanced 2.3% in July after dropping 3.3% in June and were 11.0% greater than a year earlier.
  • The current account deficit narrowed to AUD 5.64 billion last quarter from AUD 16.6 billion in 1Q10.

It looks increasingly like Australia’s Liberal/National Coalition Party will unseat the Labour Party following elections that gave neither a majority of parliamentary seats.  New Zealand building approvals rose 3.1% in July.

On-year growth in South Korean industrial production decelerated to a still robust 15.3% in July from 17.1% in June.  The index of leading economic indicators in July was 6.7% greater than a year earlier, down from a 7.1% on-year rise in June.

In Hong Kong, retail sales unexpectedly slowed to on-year growth of 15.3% in June from 19.7% in May.  In Thailand, business sentiment slid to 50.4 in August from 52.1 in July, and factory output was 16.3% greater than a year earlier in July.

Turkey’s trade deficit amounted to TRY 6.4 billion in July, somewhat more than expected.

South African M3 growth accelerated to 3.7% in July from 2.4% in June.  Credit growth also picked up, reaching an 11-month high of 2.0% after 0.9% in June.  South Africa recorded a zero trade balance last month after a surplus of R 5.6 billion in June.

Scheduled U.S. data included the Case-Shiller house price index, mid-western PMI-manufacturing scores, the NAPM index, and the Conference Board measure of consumer confidence.  Weekly chain store sales and the FOMC minutes are due, too.  Canada reports second-quarter GDP data.

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

Tags: , ,


Comments are closed.