Now Italy’s in the Cross-Hairs
July 11, 2011
As European Finance Ministers meet, contagion fears have turned to Italy. While estimates released in late April put the third largest Euroland economy’s fiscal deficit-to-GDP at 4.6% in 2010, less than half the relative size the Portuguese, Greek, Irish or Spanish imbalances, Italy’s massive debt-to-GDP ratio climbed from 103.6% in 2007 to 119.0% in 2010. That’s second in size to Greece. Ten-year bond spreads vis-a-vis Germany closed before the weekend at 1415 basis points in the case of Greece and more than a thousand bps for Portugal and Ireland. Spreads have widened additionally today and exceed 300 bps for Spain and over 265 bps for Italy.
European contagion and fears of slower growth in China and the United States weighed on stocks overnight. In the Pacific Rim, equities fell by 1.7% in Hong Kong, 1.6% in Australian, 2.1% in Sri Lanka, 1.1% in Singapore and South Korea, 1.0% in Taiwan and Thailand, and 0.7% in Japan and India. So far, the Paris Cac and German Dax have lost 1.4% and 1.0%. Milan’s bourse is down 1.3%, but the British Ftse is only 0.3% lower. Chinese stocks (+0.1%) also showed resilience.
The euro sank another 1.0% against the dollar, touching a low of $1.4109. The dollar otherwise has risen 0.6% against sterling, 0.5% against the Australian and New Zealand dollars, and 0.3% relative to the Canadian dollar. The greenback, however, is unchanged against the Swiss franc, Chinese yuan and Japanese yen.
Ten-year bond yields fell eight, six, and three basis points in Germany, Britain and Japan. Ten-year Treasuries are indicated below 3.0%.
Oil prices suffered a relapse of 1.2% to $95.07 per barrel. Gold edged 0.1% higher to $1543.70 per ounce.
Mexican monetary policy was left unchanged Friday as expected.
Data released over the weekend by China showed higher inflation and a wider trade surplus.
- CPI inflation accelerated more sharply than forecast to 6.4% in June from 5.5% in May, 5.3% in April, 4.9% in January and February, and 4.1% in November. Food costs were 14.4% higher than a year earlier, while other consumer prices recorded a 3.0% advance.
- Producer price inflation accelerated to 7.1%, most since March after readings of 6.8% in April and May.
- The $22.3 billion trade surplus in June was the largest since $22.9 billion last November and reflected slower import growth, which was at 19.3% versus 28.4% in May. China registered a $46.8 billion trade surplus in the second quarter compared to a $1.0 billion deficit in the first quarter.
Japanese consumer confidence remained very depressed with a reading of 36.2 in June after 34.8 in November and 33.4. Such had averaged 40.0 in 1Q11.
Japanese M3, M2, and M1 posted on-year growth of 2.2%, 2.9%, and 4.8% in June. The increases in 2Q11 were 2.2%, 2.8%, and 4.8%, and for calendar 2010, such had expanded 2.1%, 2.8%, and 2.0%. Broad liquidity was 0.1% higher than in June 2010. Such fell by 0.2% between 2Q10 and 2Q11.
Japanese machine tool orders were 53.3% higher in June than a year before, accelerating from a 34.0% on-year advance in May but similar to April’s increase of 52.4%.
French industrial production provided a favorable surprise, bouncing back 2.0% in May after drops in March and April. Analysts were anticipating an increase in May but only of 0.5%. Industrial production and factory output were 2.9% and 4.8% greater in May than a year earlier.
Malaysian industrial production fell 1.3% in May and was 5.1% lower than a year earlier. Australian home loans and investment loans each advanced 4.4% in May. Turkey’s current account deficit widened 2.1% on month to $7.75 billion in May. Filipino M3 money growth accelerated to 8.0% on year in may from 7.3% in April but was less than the first-quarter’s 9.9% pace.
Greek industrial production rose 6.5% in May but fell 10.0% on year following a 10.9% drop in the year to April. Irish industrial output in the same month edged down 0.1% and was 0.3% higher than in May 2010.
Norwegian consumer prices slid 0.4% in June and posted a 12-month increase of 1.3%. Core CPI, which Norges Bank targets at 2.5%, eased to 0.7% from 1.0%. PPI inflation was still in double=digit territory at 14.4% despite a 0.9% on-month decline. Romanian consumer prices slid 0.3% in June and to 7.9% on year from 8.4% in May. Danish consumer prices fell 0.2% in June and were 3.0% higher than a year earlier. Denmark’s current account surplus of 9.3 billion krone in May was 9.4% wider than a month earlier and 63% bigger than in May 2010.
Sterling was hit by a bearish quarterly Chamber of Commerce review that called Britain’s economy vulnerable in the face of slower global demand.
No meaningful U.S. data get released today. Canadian housing starts will be released in 45 minutes. The Bank of Japan started a two-day policy meeting that is expected to leave a target range for overnight money of zero to 0.1%.
Copyright Larry Greenberg 2011. All rights reserved. No secondary distribution without express permission.
Tags: China CPI, Ecofin, Italian debt
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