Global Growth Worries Continue to Lift Euro and Swissy and Depress Equities

June 2, 2011

Markets continue to reel from Wednesday’s discouraging data.  U.S. jobless insurance claims released today added to that funk.

Stocks fell 1.7% in Japan, 1.6% in Hong Kong and China, 2.3% in Australia, and 1.3% in South Korea.  The Paris Cac, German Dax, and British Ftse have declined so far by an additional 1.1%, 1.0%, and 0.7%.  The Dow plunged 2.2% on Wednesday following the releases of ADP’s private employment estimate (up just a fifth as much as predicted) and news of a 6.9-point decline in the U.S. manufacturing purchasing managers index to 53.5. 

The euro is trading above $1.445 and 0.7% above the Wednesday close in New York.  The dollar also touched a record low of CHF 0.8379 but is currently 0.1% weaker on balance.  Against other currencies, the greenback has fallen 0.3% versus the Australian dollar and 0.2% relative to the yen.  It is steady against sterling and 0.2% higher against the Canadian dollar and New Zealand kiwi. 

Defying projected upward spikes by the inflation-doomsayers, ten-year Treasury yields and German bunds are very low at 2.99% and 3.00%, respectively.  The ten-year Japanese JGB fell five basis points back to 1.14%.  Gilts are quoted at just 3.25%.

West Texas Intermediate oil prices are straddling $100 per barrel, and gold remains elevated at $1540.60 per troy ounce.

Moody’s downgraded Greek debt yesterday by three more notches to CAA1, well below investment grade and predicted at default risk of one in two within five years.  Investors await word from the EU, ECB and IMF due tomorrow on a revamped bailout facility.  ECB President Trichet is due to speak today.  Spanish auctions today of 3- and 4-year paper went somewhat better than feared based on their higher bid-cover ratios but still fetched considerably higher yields than previously.

The prime ministers of Japan and Spain survived no-confidence votes today. 

The Bank of Japan balance sheet totaled JPY 135.1 trillion at end-May, JPY 2.0 trillion wider than on May 20.  Such stood at JPY 134.6 trillion at the end of April.  The Japanese monetary base showed less on-year growth of 16.2% in May than April’s 23.9% outcome.  The base in 1Q11 was 9.3% larger than a year earlier.

The Japanese Finance Ministry’s quarterly corporate survey reported first-quarter advances of 3.3% in capital spending and 1.4% in corporate sales.

Japanese stock and bond transactions generated a JPY 13 billion capital outflow in the week of May 28 compared to a JPY 416 billion net inflow in the prior week.

The U.S. Department of Labor report on weekly jobless claims, like yesterday’s ADP estimate for private employment, was weaker than assumed.  New claims fell just 6K to 422K and averaged 425.5K over the past four reported weeks.  Continuing claims have plateaued above 3.7 million.

A drop of 1.2% in U.S. industrial orders in April was more than twice as much as forecast.  That decline  and a 0.3% dip in February flanked a 3.8% advance in March.

The first-quarter rise in U.S productivity got revised upward to 1.8% from 1.6%, but the on-year increase of 1.3% was still down from a 2.0% increase in the year to 4Q10.  Unit labor costs last quarter were 0.7% higher than in the previous quarter and in the first quarter of 2010.  In order for the commodity-fueled elevation of CPI and PPI inflation to be sustained, labor costs will need to deteriorate.  That requires a much better functioning labor market than seen thus far.

A 1.2% quarterly slump in Australian real GDP reported Wednesday was followed by better news today.  Retail sales increased 1.1% in April, three times as much as assumed, and were 2.7% greater than in April 2010.   April also saw the trade surplus remain high at AUD 1.597 billion after AUD 1.691 billion in March.

The British purchasing managers index for construction improved in May to a reading of 54.0 from 53.3 in April.  Scores above 50 connote expanding activity.

Wednesday had seen the release of a slew of manufacturing PMI surveysMost were disappointing like the aforementioned 6.9-point decline of the U.S. index.  There was deterioration among emerging economies as well as other advanced ones.  For example,

  • The euro area PMI slid 3.4 points to a 7-month low of 54.6, which was also below the preliminary May reading of 54.8.
  • Germany’s manufacturing PMI of 57.7 compared to a reading of 62.0 in May.
  • The French index fell by 2.6 points to 54.9.
  • Italy’s PMI fell 2.7 points to a six-month low of 52.8.
  • Spain’s reading crossed the no-change line, swinging to 48.2 from 50.6 in April.
  • The Greek index of 44.5 after 46.8 showed a deepening rate of contraction.
  • Ireland’s index sank 4.2 points to a six-month low of 51.8.
  • The Dutch index of 55.1 was 4.1 points below April’s reading of 59.2.
  • The Czech index of 55.9 was down 3.1 points and the weakest reading since February 2010.
  • Hungary’s index of 52.3 after 56.9 was at an 8-month low.
  • Poland’s PMI weakened to 52.6 from 54.4.
  • Denmark scored a 58.0, 6.6 points weaker than in April.
  • Sweden’s reading of 56.1 was down form 59.8.
  • Turkey’s 50.6 was 2.1 points lower and the weakest score since September.
  • Russia’s 50.7 followed readings of 52.1 in April and 55.6 in March.
  • China’s 51.6 was only 0.2 points lower but the weakest rate of growth since July 2010.
  • India’s reading of 57.5, though buoyant, was down 0.5 from 58.0.
  • Taiwan scored a 54.9, 3.3 points less than in April.
  • The South Korean PMI of 51.2 was down by a half point.
  • Norway (56.9 after 55.7) and the Swiss reading of 59.2 were rare exceptions to the deteriorating trend.

South African motor vehicle sales showed a smaller on-year advance of 6.1% in May than the 8.0% rise in the year to April.

The Malaysian current account surplus of MYR 30.2 billion last quarter was 27% wider than in the final 2010 quarter.

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

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