Fresh Concerns Weaken Stocks and Lift Dollar Slightly

July 5, 2011

Moody’s is warning that Chinese banks may hold more problematic loans than generally realized.

Service sector purchasing manager survey results show loss of momentum.  Euroland suffers biggest month-to-month drop of index since February 2009.

Euro are retail sales sank 1.1% in May, largest drop of 2011 so far.

Reserve Bank of Australia keeps policy unchanged and downgrades projected 2011 growth forecast.

Resignation of Japanese reconstruction minister after just a week on the job brings more political disgrace to Prime Minister Kan.

Peripheral sovereign debt spreads have widened in Spain, Italy, and Portugal.  S&P’s implication that a voluntary or selective default is still a default has generated new concerns about Greece.

The dollar advanced overnight by 0.4% against the yen and euro, 0.3% versus the Australian and Canadian dollars, and 0.1% vis-a-vis the yuan and kiwi.  The dollar slid 0.3% relative to the Swiss franc and 0.1% against sterling.

Equities fell by 0.8% in Singapore, 0.7% in Indonesia, 0.5% in Thailand, 0.3% in Australia, and 0.1% in New Zealand and Hong Kong. Stocks are up 0.2% in Britain and Germany and closed with a 0.1% uptick in Japan, but they have fallen 0.3% in France.

The 10-year yields on British gilts and Japanese JGBs firmed three and one basis points.  German bunds are steady at 3.02%.

Gold and oil prices at $1502.00 per ounce and $95.26 per barrel are 1.3% and 0.3% above their Friday closing levels.

Euroland’s composite purchasing managers index was revised downward to 53.3 from a flash indication of 53.6,  The decline from 55.8 in May was the greatest month-to-month decline since November 2008.  The services PMI reading of 53.7 was a half-point less than its flash indication, 2.3 points less than May’s score, and the weakest reading since last November.

  • The French services PMI for June was revised to 56.1 from a preliminary reading of 56.7 and 6.4 points lower than May’s 62.5.  The loss of momentum was also reflected in a 54.9 composite PMI reading, constituting an 8-month low.
  • The German services PMI suffered a big downward revision to 56.7 from 58.1 reported initially.  The service readings in 2Q averaged 56.5, down from a mean of 59.6 in the first quarter.  The composite German reading of 56.3 was a full point lower than its preliminary estimate and the weakest such has been since October.
  • Italy, Spain and Ireland experienced declining service sector employment in June.
  • Italy’s services PMI fell from 53.3 in March to 50.1 by May and a contractionary 47.4 in June.  That was the worst score since August 2009 and suggests the possibility of a new recession in Euroland’s third largest economy.
  • Spain’s services PMI scored just 50.2 in June and had an average reading for the second quarter of 50.5, down from 52.1 in the first quarter.
  • Ireland’s services PMI improved to 52.4 from 50.5 in May and 50.2 in April, but the orders component was below 50 for a second straight time, indicating contracting new business.

Britain posted a respectable service-sector PMI reading of 53.9 in June, similar to May’s 53.8.  The second quarter average score of 54.0, nonetheless, compared adversely with 54.8 in 1Q11.  British service sector orders were at a 4-month low.

Japan’s PMI for services continued to show post-quake recovery, registering a score of 45.4 in June after 43.8 in May, 35.0 in April, and 35.3 in March.  The June score was still less than the average reading of 50.1 in December-February and still represents a fair rate of contraction set against the 50 no-change line of demarcation between expansion and contraction.  Japan’s composite PMi (including manufacturing as well as services) was 47.6 in June after 46.2 in May and 35.0 in April.

China’s composite purchasing managers index sank to a 27-month low of 51.6 in June from 52.8 in May, and its services PMI was unchanged at 54.1.

India’s composite PMI reading of 56.8 was a nine-month low, even though the services PMI improved to 56.1 from 55.0.

Russia’s composite PMI of 53.8 was at a 7-month low.  The services index was 55.1 after a 13-month high of 57.6 scored in May.

Australia’s Performance of services index (PSI) slid to 48.5 in June from 49.9 in May and 51.5 in April.

A new PMI index for Canada compiled by the Royal Bank of Canada and Markit fell to 52.8 in June from 54.8 in May.

The manufacturing PMI of the United Arab Emirates slid to a 3-month low of 55.2 in June from 56.0 in May and 57.5 in April.

The 1.1% decline of Euroland retail sales volume in May included drops of 2.8% in Germany, 1.6% in Spain, 3.1% in Portugal and 0.7% in France.  Sales for the euro area in April-May were 0.4% lower than their 1Q mean, a faster pace of drop than in the first quarter of 4Q10.

The Reserve Bank of Australia released a dovish statement to explain the decision leaving the Official Cash Rate at 4.75%, its level since November.  Monetary officials were persuaded to retain the pause in part by slower economic growth in Asia and Europe.  Projected Aussie growth in 2011 was revised downward, core inflation was observed to be in the lower half of the target range, and overall CPI inflation is projected to hold within its target next year.  In short, no sense of urgency to hike the central bank rate for an eighth time was conveyed.

Australia’s goods and services trade surplus widened to AUD 2.33 billion in May, a 7-month high, from AUD 1.62 billion in April.  Exports increased 3.2% on month versus a gain of just 0.4% in imports.

The Swedish Riksbank as expected raised its repo rate by another 25 basis points to 2.0%.  The projected future path of the central bank rate was not modified.

Consumer price inflation in The Philippines accelerated to a 12-month 5.2% increase in June from 5.0% in the year to May.  Malaysia’s MYR 8.5 billion trade surplus in May was 23% smaller than in April and also less than forecast.

Japan’s cabinet approved a second supplementary budget stimulus to address quake-related damages, but parliamentary approval may be difficult.

U.S. markets reopen after the three-day Independence Day holiday weekend.  The holiday will delay the release of the PMI-services until tomorrow, but factory orders are getting released today.

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

Tags: , ,


Comments are closed.