Stocks Down, Swiss National Bank Attacks Franc Strength

August 3, 2011

Calling the franc “massively overvalued at present,” Swiss monetary officials implemented a zero interest rate policy and announced other steps to flood domestic money liquidity.  Further measures were promised “if needed” in this effort.  The Swissy is 1.1% weaker against the dollar.

Share prices in the Pacific Basin fell by 2.6% in Australia and South Korea, 2.1% in Japan, 1.9% in Hong Kong, 1.5% in Taiwan and Singapore, 1.3% in Vietnam, 1.2% in The Philippines, 1.0% in Indonesia and 0.9% in India.  The German Dax and British Ftse slipped another 0.7%.

The dollar dropped 0.7% against the euro, 0.5% versus sterling, 0.2% against the loonie, and 0.1% relative to the yen and yuan.  There was more verbal intervention by senior Japanese officials, and the Swiss steps to stem franc strength are being seen as increasing chances for actual Japanese intervention.  The BOJ’s monthly policy meeting is scheduled for tomorrow and Friday.  The dollar firmed 0.2% against the New Zealand and Australian dollars.

Ten-year sovereign bond yields fell by two and three basis points in Britain and Japan.  The latter is hovering just above 1.0%.  The 10-year bund firmed one basis point.

Gold touched a record high of $1672.65 per ounce and is 1.5% stronger on balance since Tuesday’s close. Oil fell 0.5% to $93.37 per ounce on recession fears.

Moody’s and Fitch are keeping a triple A rating for now on U.S. sovereign debt, but Moody’s has a negative outlook and reaffirmed the risks of a future downgrade.  S&P seems likely to be the first to actually downgrade the United States.

Romania’s central bank, which has the highest EU interest rate, retained such at 6.25% where it has been since May 2010. 

Service-sector purchasing managers surveys were released for a variety of economies.  A number of such were better than feared.  A gap between manufacturing and services seems to be widening.

  • Euroland’s services PMI was at a 22-month low of 51.6 in July, revised slightly upward from a flash estimate of 51.4 but down from 53.7 in June, 56.0 in May, and 57.2 in March.  The composite index scored a 51.1 after 53.3 in June, 55.8 in May and 57.8 in April.  Germany’s 52.5 reading was the worst since October 2009, and France’s 53.2 was the lowest since August 2009. 
  • Italy (48.6 after 47.4) and Spain (46.5 after 50.2) had sub-50 service-PMI scores, indicating a stall or, worse, recession.
  • Britain’s services PMI was considerably better than forecast, rising to 55.4, best since March, from 53.9 in June.  Production and sales were at three-month highs, and inflation pressure eased.
  • China’s services PMI slid to 53.5 from 54.1 in May and June.  The composite Chinese PMI was 50.4, down from 51.6 in the previous month, 52.8 in May and 55.2 at the end of 2010.  Economic growth has been dampened by monetary restraint, which continues to be ratcheted up.
  • India’s composite PMI rebounded from June’s nine-month low of 56.8 to print at 57.9.  But inflation accelerated.
  • Japan’s services PMI failed to recover further, remaining well below the 50 no change level at 45.3 in July after 45.4 in June, 43.8 in May and 35.0 in April.  The composite Japanese PMI printed at 47.7 in July versus 47.6 in June and a low of 35.0 in April.
  • Russian PMI readings were up 1.8 points to 56.9 on services and 0.8 points to 54.6 on the composite index.
  • Hong Kong’s composite PMI printed at 51.4, in between June’s 50.3 and May’s 52.2.  Last December’s reading was better at 55.2.
  • The Saudi PMI settled back to 60.0 from 62.8 in June.  The UAE manufacturing PMI weakened to 53.3 from 55.2 in June.
  • Australia’s PSI-services index stayed below 50 for a third straight time, printing at 48.8 in July versus 48.5 in June.

In other released Australian data, retail sales edged down 0.1% in June following a 0.6% decline in May and were just 1.7% higher than a year earlier.  Sales volume edged 0.3% higher in the second quarter after stagnating in the first.  Australia’s trade surplus narrowed to AUD 2.05 billion in June from AUD 2,70 billion in May.  The surplus of AUD 22.4 billion last fiscal year contrasted with a goods and services deficit of AUD 25.9 billion in fiscal 2009-10.

Euro area retail sales volume rebounded with a 0.9% rise in June after a 1.3% drop in May.  Sales were still 0.4% weaker than in June 2010.  Sales had dropped 1.2% at an annualized rate between 1Q and 2Q but were 0.2% higher in June than the 2Q mean level.

British shop prices were 2.8% higher than a year earlier in July after 12-month increases of 2.9% in June and 2.3% in May.

Turkish consumer prices fell 0.4% last month but registered a 6.3% 12-month rate of increase.  The PPI was unchanged in July but 10.3% higher than a year before.

The U.S. data calendar today is crowded.  It includes the service sector PMI, durable goods orders, the ADP estimate of private employment, Challenger job cuts, oil inventories, and mortgage applications.

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

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