Numerous Official Efforts to Halt Market Turmoil Mostly Failing

August 8, 2011

After markets closed Friday, S&P downgraded the U.S. credit rating from AAA to AA+ and retained a negative outlook, meaning more downgrades are possible.

Stocks in Israel tumbled almost 7% on Sunday.

G-20 finance ministers and central bank governors released a statement that “affirms our commitment to take all necessary initiatives in a coordinated way to support financial stability and to foster stronger economic growth.”

G-7 finance ministers and central bank chiefs released a somewhat lengthier communique that declares, “We are committed to addressing the tensions stemming from the current challenges on our fiscal deficits, debt and growth, and welcome the decisive actions taken in the US and Europe.”  Action to stabilize currency movement is promised if needed.

German Chancellor Merkel and French President Sarkozy issued a joint statement calling the decision of Italian lawmakers to balance its budget a year sooner than planned previously to be a step of “fundamental importance” and pledge speedy action to strengthen the effectiveness of the EFSF.

A statement from the ECB Governing Council applauds these other actions, demands that their words be strictly implemented, and reverses last week’s refusal to buy Italian and Spanish bonds with its Securities Markets Program.  Spanish and Italian 10-year sovereign bond yields dropped by 96 basis points and 77 bps to less than 5.4%, amid ECB buying.

U.S. Secretary Tim Geithner agreed not to leave his post until after the 2012 election.

Relief from all the above was short-lived.  The return of risk aversion can be observed in

  • A greater-than-$50 leap in gold prices, which touched a record of $1718.20 per ounce and show a net rise of 3.4%.
  • Further big declines in share prices, amounting to 3.8% in Taiwan, 3.7% in Singapore, 3.6% in South Korea and China, 2.9% in Australia, 2.8% in New Zealand, 2.3% so far in Germany, 2.2% in Hong Kong and Japan, 1.9% so far in France, 1.8% in Indonesia, Malaysia, and India, 1.5% so far in Britain, 1.4% in Thailand, and 1.1% in Vietnam.
  • Advances against the dollar of 1.1% in the yen and 0.8% in the Swiss franc.
  • A 4.1% decline in oil prices to $83.36 per barrel.
  • Weaker commodity-sensitive currencies.  The greenback rose 2.0% against the kiwi, 1.2% versus the Aussie dollar, and 0.7% relative to the loonie.
  • An-8-bp drop in the 10-year Treasury yield futures.

The 10-year German bund yield is a basis point firmer.  The gilt yield dipped 3 bps.  JGBs are unchanged.

The dollar is 0.2% firmer against the euro after sinking initially in overnight trading.  The yuan firmed 0.1% against the dollar.

Japan’s current account surplus amounted to JPY 527 billion in June, half its size a year earlier.  Adversely affected by the March earthquake, the first-half surplus was JPY 5.51 trillion, down from JPY 8.53 trillion in 2H10 and JPY 8.64 trillion in 1H10.  The seasonally adjusted current account surplus shows nice mending, however, and printed at JPY 923 billion after JPY 391 billion in May.

Japanese stock and bond transactions in July generated an JPY 82 billion capital outflow.

Japanese bank lending, including trusts, was 0.5% less in July than a year earlier.  Such had posted on-year declines of 1.8% in 1Q11 and 0.8% in the second quarter.  Japanese bankruptcies were 1.4% greater than a year earlier in July.

Japan’s economy watchers index improved three points to 52.6 in July from 49.6 in June, 36.0 in May, 28.3 in April and 27.7 in March.  Such was the first reading above 50.0 this year.  However, the outlook component of the economy watchers index took a step backwards, falling to 48.5 from 49.0 in June, but such was still well above a reading of 26.6 in March.

Taiwan’s trade surplus in July was 136% wider in July than June at $3.3 billion.  Exports were 17.6% greater than a year earlier.

Australian job ads fell by 0.7% last month.  Home prices in New Zealand were 0.4% lower than a year earlier in July.  Turkish industrial production fell by 0.9% in July but were 6.9% higher than a year before.

Euroland’s Sentix index of investor sentiment deteriorated sharply to minus 13.46 in August from +5.31 in July.  Current conditions fell by 15.75 points, while expectations worsened 21.25 points.  The overall index high-water mark in 2011 was at +16.7 in February.

The Bank of France projects that GDP in France will rise 0.2% in the present quarter.  The central bank’s business sentiment index slid to 98 in July from 99 in June. 

Swiss unemployment held steady at 2.8% in July.  Czech joblessness edged up a tenth percentage point to 8.2% last month.  Czech industrial production in June was 7.4% greater than a year earlier, and the June trade surplus of CZK 17.6 billion was 28.5% wider than in May.

No U.S. or Canadian data releases are scheduled today.

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

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