A Disappointing Italian Debt Auction

September 13, 2011

Worry about euro area sovereign debt got new impetus after Italy’s five-year auction fetched a yield of 5.6%, up from 4.93% in the prior tender and the highest since at least 1999. Italian and Chinese officials have reportedly been in talks about China maybe increasing its buying of Italian debt, but the auction did not suggest any agreement on that score.

The Paris Cac plunged 2.5%, and stocks in Britain, Germany, Italy and Spain have all fallen at least 1.0%.  In the Pacific Rim, share prices had advanced 1.0% in Japan, 0.9% in Australia and 0.7% in New Zealand but fallen by 2.9% in Taiwan, 1.1% in China, 0.9% in Thailand and 0.6% in Indonesia.

The dollar is unchanged against the euro and Swissie, and the franc was no stronger overnight than 1.2025 per euro, thus staying under the Swiss central bank’s pegged ceiling rate.

The dollar otherwise rose by 0.4% against the Australian dollar, 0.2% versus the kiwi and sterling and 0.1% relative to the Canadian and Chinese currencies.  The dollar is 0.4% lower against the yen, however, and a tad below 77.0.

Ten-year British gilt and German bund yields dipped by three and one basis points, while the 10-year Japanese JGB firmed a single basis point.

Oil prices firmed 0.7% to $88.77 per barrel.  Gold edged down 0.1% to $1811.70 per ounce.

Several countries reported August CPI data, most notably Britain where consumer prices climbed 0.6% and to a 12-month 4.5% increase from 4.4% in July.  Retail prices in the U.K. rose 0.6% and accelerated to 5.2% from 5.1%.  The RPIX inflation rate was 5.3% versus expectations of 5.2% and July’s 5.0% pace.  Core CPI inflation picked up to 3.1% from 3.0% in July.

French consumer prices rose 0.5% and accelerated to a 12-month 2.2% advance from 1.9%.  Core CPI in France was only 1.2%.  Energy prices were 11.9% higher than a year earlier.

Spanish consumer prices were unchanged in August and slid to an 8-month low in on-year terms of 3.0%.  Swedish consumer prices also were steady on month and up 3.4% on year, but the core index was just 1.6% above a year earlier. Hungarian consumer prices dipped 0.1% on month and were 3.6% higher than in August 2010.

Two British housing market measures were reported.  The Department of Communities and Local Government price index for July fell 1.5% on year, a smaller 12-month drop than that of 2.0% registered in June.  The Royal Institute of Chartered Surveyors house price balance index scored a reading of minus 23, a point worse than in July.

The British goods and services trade deficit was GBP 4.45 billion in July, slightly greater than forecast.  The goods deficit of GBP 8.922 billion was 0.6% wider than June’s GBP 8.873 billion shortfall and embodied a deficit in oil commerce of GBP 1.213 billion.  That gap has been creeping higher for this former net oil exporter.

Australia’s business confidence had a significantly weaker reading in August of minus 8 after +2 in July.  Business conditions fell two points to minus 3.  Australian building permits climbed 1.0% in August but were still 15.0% lower than a year before.  New Zealand reported a 0.7% drop in  manufacturing output last quarter as well as a 1.3% monthly decline in food prices, their first drop in over a half year.  New Zealand home prices climbed 0.5% on month but just 0.1% on year in August. 

South Africa’s current account deficit last quarter shrunk 25.5% from the size of the 1Q deficit to ZAR 65.4 billion.

German Chancellor Merkel observed the obvious omission of no mechanism for an orderly default by one of Euroland’s members.  A number of European officials will be making public comments later today.

Scheduled U.S. data releases include import prices, the monthly federal budget, the IBD/TIPP optimism index, small business sentiment, and weekly chain store stales.  Brazil reports retail sales.

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

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