Revived Appetite for Risk, or a Dead Cat Bounce?

September 27, 2011

Markets rallied overnight, relieved at indications that progress is being made by European debt crisis negotiators to bulk up EFSF resources in ways that will not need the approval of national parliaments or continuing heavy participation of the ECB.  Warning: the European debt saga is full of prior instances of dashed hopes.  This week’s better risk appetite may prove to be nothing more than another dead cat bounce.

Share prices in the Pacific Rim recovered 5.0% in South Korea, 4.8% in Indonesia, 3.6% in Australia, 4.7% in Thailand, 3.1% in Taiwan, 2.8% in Japan, 2.4% in Malaysia, 3.0% in India, 2.7% in Singapore, and 1.2% in New Zealand.  The German Dax, Paris Cac, and British Ftse so far show overnight advances of 3.5%, 3.4%, and 2.4%.  U.S. stock futures point to likely gains as well.

Gold jumped 5.1% to $1675.80 per ounce. Silver leaped 6.8%.  Oil increased 2.6% to $82.34 per barrel.

Ten-year sovereign debt yields rose by seven, four, and two basis points in Germany, Britain and Japan.

The dollar lost 0.9%, 0.6%, and 0.1% against the New Zealand, Australian, and Canadian commodity-sensitive dollars.  The greenback is up by 0.3% relative to the Swissie, 0.2% against sterling and 0.1% versus the yen and euro.  The yuan at 6.4002/USD is unchanged but weaker than its recent highs.  As in 2008, Beijing officials appear to have paused yuan appreciation in the face of global recessionary fears.

German consumer confidence printed at 5.2, same as in September.  This was the first time such didn’t post a monthly decline since June.

The Confederation of British Industry released results of the September retailer survey, showing a one-point dip to minus 15.  Between May and August, the index had worsened by 32 points.

The Swiss UBS consumption barometer had a 0.79 reading in August, down from 1.28 in July and 1.52 in June.

Small Japanese business sentiment, according to the monthly Shoko Chukin index, improved 0.8 points but remained under 50 at 47.2, signaling more pessimism than optimism.  In the wake of the Sendai earthquake, such has slumped from 49.5 in March to 36.1 in April.  All of the improved confidence in September was concentrated in manufacturing.  Non-manufacturing slid by 0.3 points to 45.8.

South Korean consumer confidence stagnated at 99 in September after a 3-point drop in August.

An acceleration of euro area M3 growth to 2.8% on year in August, a six-month high, from 2.1% in July and to 2.3% in June-August from 2.1% in May-July mainly reflected faster growth in marketable instruments to 5.4% from 1.2% and of M1 to 1.7% from 1.0%.  Private-sector loans inched up to 2.6% from 2.4%, but private sector credit slowed to 1.8% from 2.0%.  In justifying their two earlier rate hikes this year, ECB officials had noted that money and credit growth was no longer decelerating and, more importantly, that prior strong expansion had created enough liquidity in the system to pose an inflationary threat as loan demand and real activity recovered.  It is now thought by analysts that a rate cut by November, even perhaps next month, will be up for consideration.

Swedish producer prices advanced by 0.3% on month and 0.9% on year in August.  Producer prices for domestic supply firmed 0.1%, while import prices gained 0.3%.  Swedish M3 and household lending recorded on-year growth in August of 5.4% and 6.2%.

Japanese corporate service prices dropped by 0.4% both on month and on year in August. 

Taiwan’s index of leading economic indicators fell 0.3% in August.  Hong Kong’s trade deficit narrowed 3.1% to HKD 34.8 billion.

Scheduled U.S. data releases today include the Case-Shiller house price index, the Conference Board consumer confidence index, the Richmond Fed index, and weekly chain store sales.  Fed officials Lockhart and Fisher speak publicly today.  So does EU President Juncker.  Merkel and Papandreou, the elected leaders of Germany and Greece, hold talks in Berlin.

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

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