Fresh Angst about EU Peripheral Debt Depresses Euro and Stocks in Europe

April 18, 2011

Big gains were scored by the Euro-phobic True Finns Party in yesterday’s Finnish election.  The nationalistic party secured 39 parliamentary seats, up from just 6, and will likely join a Center-Right coalition.  True Finns opposes IMF bailouts of troubled peripherals like Portugal, Ireland, and Greece, and Finnish law allows parliament to vote on and indeed veto such proposals.

Greek press reports have been denied by the Finance Ministry that Greece asked the EU and IMF to restructure its debt. Spanish auctions of 12-month and 18-month bills went poorly.  Moody’s downgraded the rating on Irish banks by two notches, and Fitch called Irish solvency fragile.

The Paris Cac, German Dax and British Ftse have traded down 1.1%, 0.9%, and 0.8%.  Japan’s Nikkei closed down 0.4%, and equities lost 1.5% in India and 0.7% in Hong Kong.  Stocks rose 0.4% in New Zealand, Malaysia, and the Philippines.

Reflected renewed risk aversion, the yen rose 0.4% against the dollar, which otherwise has climbed by 0.9% against the kiwi, 0.8% relative to the euro, 0.4% against the Canadian dollar, 0.3% versus sterling, the Aussie dollar, and the Swiss franc.  The dollar is also 0.1% firmer against the Chinese yuan and touching a new low for the move on Friday.

Ten-year British gilt, Japanese JGB, and German bund yields slid by four, three, and two basis points.

Gold and oil prices fell by 1.5% and 0.9% to $1484.50 per troy ounce and $108.62 per barrel.

The People’s Bank of China implemented a 50-basis point increase of reserve requirements to 21.5%.  The rise was the fourth one of 2011 and tenth so far including six increases in 2010.  The prior increase of reserve requirements was announced March 18.  China’s central bank has also raised its key interest rates four times, most recently on April 6.  Monetary policy is being tightened against the backdrop of accelerating inflation.  A 5.4% rise of consumer prices in the year to March was announced last week and constitutes a near three-year high.  The government last week also revealed stronger-than-expected GDP growth of 9.7% in the year to 1Q11.

Consumer prices in New Zealand rose 0.8% on month and accelerated to an on-year 4.5% rate of increase in the first quarter from 4.0% in 4Q10. 

Britain’s Rightmove house price index jumped 1.7% on month in April but slowed to only a 0.1% on-year increase.

Finnish producer prices advanced 1.1% in March and accelerated to a 12-month 7.8% increase from 7.0% in the year to February.  Import prices were 10.0% greater than a year earlier.

Italy’s current account deficit of EUR 6.3 billion in February compares to EUR 8.1 billion in January and EUR 5.2 billion a year ago.  Spanish house prices fell 4.6% between the final quarters of 2009 and 2010.

Non-oil domestic exports in Singapore fell 2.9% last month but were 10.0% higher than a year earlier.

Hungary’s central bank announcement is due shortly.  Bullard, Lockhart and Fisher of the Federal Reserve speak today in public.  IMF meetings in Washington continue.  No market moving news emerged from earlier meetings of G7 and G20 finance ministry heads.  The only scheduled U.S. release today is the National Association of Home Builders housing index.  Canada reports international transactions, a monthly release, and the euro area preliminary consumer confidence index will be reported, too.  This is a short week for many markets that will be closed on the 22nd for Good Friday.

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

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