Investors Unnerved by Middle East Unrest and Spiking Oil Prices

February 22, 2011

Stocks are sharply lower.  The dollar, Swiss franc and yen are higher.  Bond yields fell.  In the Middle East, tensions continue to escalate in Libya where strongman Quaddafi seems to be losing the support of his military.  Two Iranian naval ships went through the Suez Canal.  The Security Council meets today to discuss recent Middle Eastern developments.

The possible woes of European banks is providing another theme.  ECB emergency window lending remains above EUR 14 billion.  One ECB Council member, Mersch, warned that a tougher verbal stand against inflation may be required at the March press conference and that CPI inflation in 2011 may surpass target.

Oil prices eclipsed $93 per barrel, 7.9% above Friday’s close. Gold is up 0.6% at $1396.8 per ounce.

Equities dropped 2.9% in China, 2.8% in Vietnam, 2.6% in Pakistan, 2.1% in Hong Kong, 1.9% in Taiwan, 1.8% in Japan, 1.7% in Singapore, 1.6% in South Korea, 1.3% in Indonesia, 0.9% in Australia, 0.8% in India, and 0.7% in New Zealand.  In Europe, the Paris Cac and British Ftse have lost 1.5% and 1.1%, but the German Dax is only 0.4% softer.

Ten-year sovereign bond yields fell by four basis points in Japan and Britain and two bps in Germany.  Early indication for 10-year Treasuries after Monday’s holiday in the United States is a decline of seven basis points amid this flight to safety. 

  • Spain auctioned off 3- and 6-month bills with mixed results. 
  • Moody’s reduced the outlook on Japanese sovereign debt to negative.  This was the first downgrade in around nine years.
  • U.S. Treasury Secretary Geithner sees no risk that the debt ceiling fails to get raised by congress.

German consumer confidence climbed further form 5.8 in February to 6.0, best since October 2007, in March.

Italian consumer confidence also exceeded expectations, firming to 106.4 in January from 105.9 in December.

British debt in January equaled 57.6% of GDP, up from 50.4% a year earlier.  Public sector net borrowing amounted to GBP 5.25 billion last month versus GBP 0.1 billion a year earlier.  Excluding financial interventions, there was a surplus of GBP 3.735 billion versus a deficit of GBP 1.266 billion in January 2010.  The public sector net cash requirement equaled GBP 14.36 billion compared to GBP 6.2 billion in January 2010.

Icelandic wage inflation of 4.4% in January was similar to the on-year pace of 4.5% in December.

The Swiss trade surplus of CHF 1.958 billion in January was around 50% wider than in December.  The UBS Swiss consumption indicator weakened to 1.68 last month from 1.83 in December.

Czech business and consumer confidence slid a bit in February but remained well above year-earlier levels.  Business sentiment printed at 14.1 after 15.6 in January and 3.6 in February 2010.  Consumer confidence softened to minus 11.5 from minus 9.8, which was also the year-earlier level.  The composite confidence indicator stood at 9.0, down from 10.5 but up from 0.9 in February 2010.

Hong Kong CPI inflation accelerated to 3.6% last month from 3.1% in December.  Analysts were expecting a more muted pick up.  Core CPI in the former British colony rose to 3.5% from 2.8%.

A survey of New Zealand business people revealed a deceleration of expected inflation during the coming twelve months to 2.9% from 3.4% seen in the survey taken three months ago and 3.8% predicted three months before that.

South African GDP growth accelerated to an annualized rate of 4.4% in 4Q10 from 2.7% in 3Q and to an on-year pace of 3.8% from 2.8%.  South Africa’s index of leading economic indicators rose 1.4% to 131.5 in December from 129.7 in November.

Today’s U.S. data calendar includes the Case Shiller house price index, the Conference Board consumer confidence index, and the Richmond Fed index.  Canadian retail sales get reported.  Stark of the ECB and Kocherlakota of the Fed will be speaking.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission. 

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