Fearful Markets

May 12, 2011

Commodities and stocks have been hammered.  The dollar and yen are stronger.  Investors fear a commodity market squeeze from higher margin requirements.  Another worry is that European leaders may not agree to a larger aid package for Greece.  Weak overnight data are meanwhile weighing on economic growth prospects.  Then there is the fast-approaching end of QE2 and what that might do to long-term interest rates, share prices, the U.S. economy and the dollar.  Finally, mounting food crop shortfalls around the world are adding to inflation worries.

The dollar advanced 1.2% against the Australian dollar, 0.7% relative to the Canadian dollar, 0.6% versus sterling, 0.4% against the euro, 0.2% against the Swiss franc and 0.1% against the Chinese yuan.  The yen firmed 0.1% against the dollar in spite of soft Japanese data releases.

Stocks fell by 2.3% in South Korea, 1.8% in Australia, 1.5% in Japan and Singapore, 1.4% in China, 1.3% in India and Thailand, 0.9% in Hong Kong, and 0.8% in Indonesia.  The German Dax, Paris Cac, and British Ftse are 1.6%, 1.4%, and 1.3% lower.  U.S. stock futures point to a drop at the open.

Silver, which got has high as $49.51 per ounce in late April, slumped another 6.7% and has plunged 33% in the past two weeks since that peak.  Oil fell 1.3% to $96.97 per barrel, and gold lost another 1.2%, falling below $1500 to $1484.10 per ounce.

The yields on ten-year British gilts and German bunds fell by six and four basis points, while that on JGBs eased a single basis point to a mere 1.12%.  Greek 10-year yields have a wider premium of over 1250 basis points relative to German bunds.

Japanese data reflected the change brought on by the Sendai earthquake.  The seasonally adjusted trade surplus slumped to JPY 33 billion in March from JPY 491 billion in February as exports plunged 9.4% on month.  The unadjusted current account surplus of JPY 1.679 trillion in March was 34.3% smaller than a year earlier.  The current account surplus of JPY 15.921 trillion in fiscal 2010, however, was similar to that of JPY 15.782 trillion in the previous fiscal year ending March 2010.  Monetary relief in the wake of the quake, while led to sharply higher growth in the monetary base, hasn’t moved down the food chain to M2 or broad liquidity, which respectively were up 2.7% and down 0.3% from a year earlier in March.  Bank lending was 1.0% lower than a year earlier. 

Japan also posted a JPY 787 billion customs trade deficit in the first twenty days of April with exports 12.7% lower than a year before.  Stock and bond transactions in the week to May 1 generated a JPY 966 billion capital inflow, reflecting the greater need for capital at home.  Direct and portfolio investment in March had produced outflows of JPY 185 billion and JPY 8.121 trillion, resulting in a basic balance deficit of JPY 6.6 trillion that month.  Japan’s economy watchers index remained very depressed in April, recovering just 0.6 points to 28.3.  The reading in February had been 48.4.  Machine tool orders posted a smaller on-year advance of 32.3% in April versus 73.9% in March.

Australian jobs unexpectedly dropped 22.1K in April.  A rise of 17K had been predicted.  Such was the second decline in three months, leaving a net increase over that period of less than 10K.  Job losses in April were concentrated in full-time workers (off 49.1K).  The unemployment rate remained at 4.9%, however.

New Zealand food price inflation accelerated to 6.1% in April from 5.5% in May.  New Zealand’s purchasing managers index improved to 51.5 in March from 501. in February.

Industrial production in the euro area slipped 0.2% in March.  A small increase had been forecast but was prevented by monthly declines of 1.1% in Finland, 1.0% in Ireland and Spain, 0.9% in France and 0.6% in Greece.  The 12-month rate of increase in the region’s industrial output slid to 5.3% in March from 7.2% in February and 9.0% in December.

British industrial production rose 0.3% in March, a half percentage point less than expected, and was only 0.7% greater than a year earlier.  Production rose 2.4% between 1Q10 and 1Q11.  Factory output firmed 0.2% in March after showing no growth in February.

Greek import price inflation accelerated to 8.6% in March from 7.6% in February, and Greece’s jobless rate shot up to a record 15.9% in February from 15.1% in January and 11.6% in mid-2010.

French consumer prices rose 0.3% on month and 2.1% on year in April.  Irish consumer prices were 3.2% above year-earlier levels in April.  Spanish consumer price inflation rose two-tenths to 3.8% last month from 3.6% in March.  Swedish CPI inflation also rose, reaching 3.3% after 2.9% in March. 

South Korean M2 money growth slowed to 4.3% in March from a 12-month 5.0% rate of increase in February.

Bank Indonesia did not change its 6.75% reference rate.  That central bank had implemented just one 25-basis point increase so far in February and trails the more aggressive actions by monetary authorities in many other Asian countries.

Other central banks revealing interest rate decisions later today include those in Norway, South Africa, Peru and Chile.

The United States releases data on producer prices, business inventories, jobless insurance claims, and retail sales.  The Fed’s Plosser will be speaking.  Mexican industrial production and Canadian house prices are other releases due in North America.

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

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