Fresh Concerns about Ezone Peripheral Economies

September 7, 2010

The euro fell 0.9% against the dollar.  Stocks have declined 1.4% in Madrid, 1.2% in Paris, 1.0% in Zurich, 0.9% in London and 0.7% in Frankfurt.  Ten-year sovereign bund and gilt yields are six and four basis points lower.  Bond spreads between Euroland’s peripherals and Germany have widened to more than 935 basis points in the case of Greece, over 340 bps in Portugal, and over 170 bps for Spain.

There have been numerous adverse developments for the euro area.

  • A Wall Street Journal article questioning the accuracy of the bank stress tests.
  • A Financial Times story that German banks need considerably more capital to meet new BIS standards.
  • Disparaging remarks from a PIMCO officials that Greece might default.
  • The report of a 2.2% drop in German industrial orders in July, leaving such just 0.1% higher than the 2Q average level.  Capital goods orders sank 5.5% and were 1.2% lower than the 2Q level.  Domestic orders for capital goods, a gauge of future business spending, fell 1.8% in the latest month, while export orders for capital goods plunged 7.8% compared to June.

The Bank of Japan as expected announced no further policy changes.  The key rate stays at 0.1%, its level since December 2008.  In a subsequent press conference, BOJ Governor Shirakawa warned of a drag on business investment caused by a high yen, blamed yen strength on safe haven inflows, and said officials don’t have the means to control foreign exchange movements.  The vote for unchanged policy was 9-0, and the accompanying statement stuck to the line that economic recovery will continue and lessen the degree of CPI deflation gradually.  The statement promised to retain an extremely accommodative financial environment and to take further policy action in a “timely and appropriate” manner if deemed necessary.

Japan’s index of leading economic indicators fell from 99.0 in June to a five-month low of 98.2 in July.  The coincident and lagging indices rose by 0.5 and 2.2 points to their respective highest readings since July 2008 and March 2009.

The Reserve Bank of Australia left its Official Cash Rate unchanged as expected.  With domestic growth seen expanding around trend, CPI inflation likely to hover near target, and global prospects remaining uncertain, officials believe the current monetary policy to be appropriate for the time being.

Taiwan recorded a $2.3 billion trade surplus in August, with on-year export growth of 26.7%.

The Filipino CPI rose 0.2% in August and 4.0% from a year earlier.  Those results met analyst expectations.

Turkish industrial production increased 0.3% in July and by 8.9% from a year earlier.  The underlying pace of rise is moderating.

Business sentiment in South Africa improved 3.3 points to 87.6 in August.

According to the British Retail Consortium, same-store sales increased 1.0% on year in August, and total retail sales were 2.8% greater than in August 2009.

Swiss unemployment held steady at 3.8% in August instead of dipping a tenth as forecast.

The Czech current account swung into a CZK 29.51 billion deficit last quarter from a CZK 16 billion surplus in 1Q.

Hungary’s trade surplus of EUR 241 million in July was only half as much as forecast.

Norwegian consumer confidence improved to 22.7 this quarter from 18.5 in the second quarter.

Greek consumer prices were 5.5% higher than a year ago in August.  Danish industrial output rose 1.4% in July, but orders were down by 22.1%.

The U.S. and Canadian markets, which reopen after three-day holiday weekends, will not have to contend with new economic data releases from those economies today.  News from Monday can be perused here.

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

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