Remaining Focus on European Debt

September 14, 2011

Share prices recovered 1.5% in Germany, 1.4% in France, and 1.1% in Britain, aided by a smaller-than-expected one-notch downgrading of French banks by Moody’s.  But regional news was not entirely good — Chinese Premier Wen scolded Europe for its fiscal difficulties and said the region shouldn’t count on a Chinese bail-out as the solution to its debt problems.  French President Sarkozy, Greek Prime Minister Papandreou, and German Chancellor Merkel hold talks today.  German Finance Minister Schaeuble speaks publicly today.

Euroland industrial production rose 1.0% in July, less than forecast following a 0.8% decline in June.  Output rose 4.1% in Germany and 1.6% in France but dropped 0.7% in Spain and Italy and by 3.0% in Portugal.  Industrial production was 4.2% higher than a year earlier, as gains of 10.4% in Germany and 4.0% in The Netherlands were mitigated by declines of 1.6% in France and Italy, 4.9% in Ireland, 4.4% in Portugal, 2.9% in Greece, and 2.8% in Spain.

Commodity-sensitive currencies are lower.  The dollar climbed overnight by 0.7% versus the Aussie dollar, 0.4% against the Canadian dollar, and 0.1% relative to the kiwi.  The U.S. currency otherwise lost 0.3% against the euro and 0.1% against the yen and sterling.  The yuan is unchanged.

Share prices in the Pacific Rim are mixed.  Equities fell by 1.1% in Japan, 1.6% in Australia, 0.7% in New Zealand, 2.2% in Taiwan, 3.5% in South Korea, 2.0% in Indonesia and 0.8% in the Philippines and Thailand, but such rose by 1.5% in India, 0.5% in China, 0.4% in Singapore and 0.1% in Hong Kong.

Oil fell 0.9% to $89.41 per barrel.  Gold firmed 0.2% to $1834.30 per ounce.

The 10-year Japanese JGB and British gilt yields edged down a basis point, while their German bund counterpart went up two basis points.  Greek yields remain extremely high but not quite as much as on Tuesday.

Bank Rossii produced a mixed decision for Russian monetary policy, leaving its refinancing rate steady as expected at 8.25% but reducing the differential between the repo rate (now 5.25%) and deposit rate (3.25%) to 200 basis points from 250 bps by cutting the former and increasing the latter.

Australian housing starts fell 4.7% last quarter, more than reversing the first-quarter increase.

Japanese industrial production in July was revised to a gain of only 0.4% from 0.6% reported initially.  Analysts had originally projected an increase of 1.4%.  Output was still 5.0% above the 2Q average level but 3.0% lower than in July 2010.  The inventory ratio climbed in July by 4.0% on month and 6.7% on year.  Capacity was 0.8% higher than a year before, while capacity usage showed a 3.0% on-year drop. 

British labor statistics were released.  The ILO unemployment rate of 7.9% in May-July was as expected and up from 7.7% in February-April.  But the claimant count of joblessness went up 20.3 thousand in August after bigger increases of 31.0K in June and 33.7K in July.  Earnings remained subdued.  On-year growth in regular pay was 2.1% in May-July, while pay inclusive of bonuses posted a 2.8% increase.

The deflationary effect of prior Swiss franc appreciation was reflected in the PPI/import price index, which sank in August by 1.2% on month and 1.9% on year.  Swiss monetary authorities are now pegging their currency to the euro with intervention as needed.  Domestic producer prices fell by 0.8% from July and by 1.8% from August 2010.

The Dutch trade surplus widened 38% on month to EUR 4.0 billion in July.  Finnish consumer prices rose 0.4% on month and 3.8% on year in August.

Indian wholesale price inflation accelerated by more than forecast to 9.8% in August from 9.2% in July.

Several market-moving U.S. economic indicators arrive today, notably retail sales but also producer prices, business inventories, and weekly petroleum stocks.  The Federal budget deficit in August, announced late yesterday, came in at $134 billion versus $90 billion in August 2010.  Geithner speaks publicly today, and Canadian capacity utilization in the second quarter will be reported.

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

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