Equities Continued Their Retreat as New Week Begins

May 16, 2011

Stocks are down 1.4% in Germany and France and by 0.8% in Britain.  They fell 1.4% in Hong Kong, 1.3% in Australia, 1.1% in Taiwan, 1.0% in India, 0.9% in Japan, China and Indonesia, and 0.8% in South Korea.

Oil prices dropped 1.8% to $97.88 per barrel, while gold is trading 0.2% softer and below $1500 at $1490.60 per ounce.

The dollar gained ground against commodity currencies but is softer against the Swiss franc (0.5%), yen and euro (each by 0.2%).  The biggest advance was by 1.0% against the kiwi.  The dollar rose 0.7% against the Canadian dollar, 0.2% versus the Australian dollar and 0.1% against the Chinese yuan.  Sterling is unchanged against the dollar.

The 10-year JGB yield edged a basis point higher, while British gilts and German bunds are unchanged.

The biggest shock of the weekend was the arrest in New York City on attempted rape of the IMF managing director, a key figure in promoting euro area debt crisis negotiations and the leading candidate to challenge French President Sarkozy in next year’s election.  European finance ministers are meeting today and tomorrow in Brussels to work explicitly on the Portuguese and Greek debt problems.

The biggest data surprise of the day involved Japanese machinery orders in March, which didn’t plunge as forecast.  Instead of falling 10.2% as forecast, core domestic machinery orders went up 2.9% in March and notched a 3.5% increase in the first quarter.  Moreover, officials predicted a 10.0% second quarter-over-first quarter rise in core domestic orders.  The machinery report was not entirely upbeat, however, as public sector and foreign orders for machinery respectively declined by 10.3% and 11.4% in the latest month. 

Also, Japanese consumer confidence weakened to 33.4 in April, the worst reading since April 2009, from 38.3 in March, 40.6 in February and 41.1 in January.

And Japanese domestic corporate goods price inflation accelerated in April with a monthly advance of 0.9% after 0.6% in March and 0.2% in February, as well as a larger 12-month 2.5% rate of increase after 2.0% in March, 1.7% in February, and 1.5% in January.

An acceleration of Euroland consumer price inflation to 2.8% in April from 2.7% in March was confirmed.  The interesting thing is that core inflation was the source of the advance.  Energy inflation fell to a 12.5% on-year pace from 13.0% in March and 13.1% in February.  Food inflation edged down to 2.2% from 2.4%, but core inflation rose to 1.8% from 1.5% in March and 1.1% in February.  Among components of core inflation, healthcare increase to 1.6% from 1.3%, and recreation and culture swung to a 0.9% on-year rise from a 0.3% drop.  This news will fire up the hawks on the ECB Governing Council.  Consumer prices in April increased 0.6% on month.

Euroland’s seasonally adjusted trade deficit narrowed to only EUR 0.9 billion in March from EUR 2.1 billion in February and EUR 3.2 billion in January.  Exports rose 1.1% on month and at a sizzling 30.9% annualized pace between December and March.  Nonetheless, the unadjusted first-quarter deficit of EUR 16.2 billion was significantly larger than the EUR 6.3 billion deficit in the first quarter of 2010.

The British Rightmove house price index posted a 1.3% on-month increase and showed a larger 12-month 0.7% rate of increase.

New Zealand seems to be recovering from the Christchurch earthquake.  The performance of services index in New Zealand was again above the 50 no-change line, posting a reading of 52.6 in May after 51.1 in April. Australian home lending fell 1.5% in March, a much weaker result than forecast.  Australian motor vehicle sales sagged 3.5% on month and 8.4% on year in April.

Singapore’s trade surplus widened 19.4% on month to SGD 4.44 billion in April, but both exports and imports were smaller in April than March.  South Korea’s trade surplus nearly doubled on month in April, as exports rose 2.2% but imports fell 3.0%.

Wholesale price inflation in India of 8.7% in April exceeded expectations of 8.4% but was lower than in March or a year earlier.  Monetary policy in that country has been tightened several times to contain price pressures.  Turkish consumer confidence hardly changed in April, printing at 93.46, 0.03 better than in March.  Turkey’s jobless rate grew 0.6 percentage points to 11.5% in February.

The Italian trade deficit of EUR 4.19 billion in March was 23% bigger than in February.  Imports were 20.4% greater than a year earlier, while exports recorded growth of 14.1% compared to March 2010.  Italian consumer price inflation of 2.6% was confirmed for April.  The monthly increase was 0.5%.  Czech producer prices rose more than forecast in April, climbing 0.8% from March and 6.4% on year.  Denmark’s PPI went up 0.7% monthly and 8.3% on year in April.  Norway’s trade surplus widened 21.4% on month to NOK 39.2 billion in April and by 48.5% from a year earlier.

An interest rate decision is due today from Hungary’s central bank, with analysts not expecting a change. 

Scheduled U.S. economic data today will feature the National Association of Home Builders index, the New York Fed’s Empire State manufacturing index, and the Treasury Department’s international capital flows (known as the TIC report).  Canada’s monthly survey of manufacturing is due.  Bank of Canada Governor Carney will be speaking. 

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

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