Fresh Blast of Risk Aversion

September 2, 2011

At 13:50 GMT, U.S. share prices were down 1.6-1.7%.  Earlier trading overnight saw equities fall by 1.2% in Japan, 1.8% in Hong Kong, 1.5% in Australia, 1.1% in China and 0.9% in New Zealand.  Europe has seen the most damage, with the German Dax and Paris Cac suffering losses so far of 3.5% and the British Ftse down 2.4%.

Gold shot up 2.7% to $1878,50 per ounce.  Commodities other than for precious metals have weakened. Oil prices fell 4.1% to 85.90 per ounce.

A 1.7% rise of the Swiss franc against the dollar and 2.0% advance versus the euro has led to mounting speculation that Swiss authorities may have no other recourse than to start intervening directly in currency markets.

Ten-year sovereign debt yields dropped 13 basis points in Germany and nine basis points in the U.S. and Britain.

Investors believe a global recession is now unavoidable.  Many indeed wonder if the notion of recovery since mid-2009 was an illusion.  There’s been more bad data.

The dollar has risen 0.8% against the Aussie dollar, 0.7% relative to the loonie, 0.3% against the euro, and 0.2% versus the kiwi.  The greenback is unchanged against the yen and yuan and 0.1% softer versus sterling.

U.S. non-farm payroll jobs were unchanged in August, their worst performance in eleven months.  Analysts anticipated a weak rise of 70-80K.  Jobs growth in June and July was revised downward by a combined 56K, so August’s job level was around 115-125K lower than assumed.  Private-sector employment only went up 17K, although that figure was adversely deflated 45K by the Verizon situation.  Factory jobs dropped 3K.  The U.S. jobless rate remained at 9.1%, but the broad un- and underemployment measure ticked up a tenth to 16.2%.  43% of the unemployed have been jobless at least 27 weeks.  Average hourly earnings fell 0.2% and to a 12-month 1.9% rate of increase.  The workweek shrunk to 34.2 hours. 

Japanese business investment plunged 7.8% last quarter and by 8.2% excluding software.  That was the largest decline in five quarters and belies the notion of steady recovery from the earthquake shock.  It also points to a potentially large downward revision to GDP.  Real GDP on August 13 was reported initially to have contracted at a 1.3% annualized rate in 2Q, but that estimate had assumed a 0.9% increase of non-residential business investment.

There have been more setbacks in the European peripheral deficit-reduction efforts.

  • An IMF/EU/ECB inspection visit to Greece was suspended for ten days after unacceptable fiscal forecasts.
  • ECB President Trichet escalated criticism of Italian fiscal consolidation efforts.

Purchasing manager survey results announced today were discouraging.

  • Britain’s construction PMI fell more than forecast to 52.6 in August from 53.5 in July and 56.5 six months earlier in February.
  • India’s manufacturing PMI slid another point to 52.6.  Such had printed at 57.5 as recently as May.
  • Turkey’s manufacturing PMI swung into the red, registering a reading of 48.8 in August after 52.3 in July.  A record high of 58.5 had been set in February.

Expectations are extremely low that President Obama’s jobs speech on September 8 will change the stalemated U.S. political metrics or inspire confidence in anyone.  In short, such will be a D.O.A. event. 

Regional elections in Germany in Mechlenburg threaten to tie Chancellor Merkel’s hands further in dealing with the euro area’s peripherals.  The irony there is that Germany’s obstructionist role in debt talks has been a catalyst for importing the slow growth of the region back into Germany, which previously had been insulated from the slow growth.

Producer prices in the euro area climbed 0.5% in July and by 6.1% on year, matching forecaster expectations.  Non-energy producer prices were subdued with a gain of just 0.1% from June and 4.1% on year. 

Romanian producer price inflation accelerated to 9.3% in July from 8.4% in June.

Czech retail sales dipped 0.1% on month and were 1.7% lower than in July 2010 because of fewer working days.

In Japan, where the BOJ had eased, the central bank’s balance sheet grew to JPY 141.5 trillion by end-August from JPY 134.5 trillion a month earlier and JPY 129.6 trillion at mid-2011.  The monetary base in August was 15.9% greater than a year earlier, but the policy-sensitive current account balances were up 79.4%  after climbing 73.3% in the year to July.

U.S. Treasury market trading will close early today to start the three-day Labor Day weekend.

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

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