First Monday of October

October 3, 2011

Today is the first trading day of the month and quarter.  Many national purchasing manager surveys were published, and the Bank of Japan’s corporate quarterly Tankan survey of business was reported (See review).  The Tankan reflected a further recovery in the third quarter but caution about the future.  The U.S. Supreme Court convenes after its summer recess, and holidays were celebrated in Germany, China, and South Korea.

  • German Unity Day commemorates the reunification of East and West Germany on October 3, 1990.
  • China’s Golden Days, also known as the National Day observances, commemorates the founding of a communist state on October 1, 1949.  Markets in China will be shut all week.
  • National Foundation Day in South Korea celebrates the mythical start of Korea as a nation in 23333 BC.

Tensions over Greece have intensified.  FT columnist Wolfgang Munchau writes today that the latest proposed Euroland scheme to lever the EFSF Greek bailout fund “a crazy idea to turn the eurozone’s rescue fund into a collateralized debt obligation.”  Subprime CDOs produced the 2007 global financial crisis.  Modeled after those, Euroland CDOs would involve a potentially greater gamble.  Meanwhile, leaked information suggests that the Greek budget deficits in 2011 and 2012 will be even larger than imagined previously, suggesting that Greece’s creditors will be asked to take a larger haircut.

Equities got walloped in the Pacific Rim and Europe, falling 5.1% in Thailand, 5.6% in Indonesia, 3.4% in The Philippines, 2.9% in Taiwan, 2.8% in Australia, 4.4% in Hong Kong, 1.8% in India, 2.0% in Singapore, 1.4% in Malaysia, and so far 2.1% in France and 1.3% in Great Britain.  The S&P and DOW have lost an additional 0.5% and 0.7% despite a better-than-expected U.S. purchasing managers survey in manufacturing.

The dollar is mixed, with gains of 0.9% against the euro, 0.8% relative to sterling and the Swiss franc, 0.5% against the Aussie dollar and 0.2% versus the kiwi but losses of 0.5% against the yen and 0.2% versus the yuan and Canadian dollar.

On fresh risk aversion, gold advanced 1.9% to $1652.40 per ounce, while oil dropped 0.6% to $78.74 per barrel. 

Ten-year U.S. Treasury and German bund yields fell eight basis points, and 10-year British gilts are seven bps lower.  Japanese JGBs are unchanged.

The U.S. factory purchasing managers index unexpectedly rose a full point to 51.6, connoting stronger expansion in September than August. 

The euro area manufacturing PMI in September was revised up a tenth of a point to 48.5 but remained below 50 and 0.5 points below its August reading. Within Euroland, the German PMI dropped 0.6 to 50.3, and the other indices were below 50, meaning manufacturing is contracting.  The French reading of 48.2 was 0.9 points lower than in August. Italy’s index rose 1.3 points to 48.3. Spain’s fell 1.6 points to 43.7.  The Dutch index had been above the 50 threshold but declined 1.8 points to 48.9 in September.  The Irish score of 47.3 showed a drop of 2.4 points, and the Greek index ticked down a tenth point to 43.2.

Greece has no chance of restoring decent competitiveness so long it shares the euro.  Greek producer prices on average were 8.5% higher than a year earlier in July-August.

Britain’s PMI in manufacturing surpassed 50 for the first time in three months, printing at 51.1 after 49.4.  The Hometrack British house price index posted a fifth straight monthly dip of 0.1% in September and was 3.5% lower than in September 2010.

In spite of the daring Swiss National Bank’s decision on September 6 to peg the franc to 1.20 per euro or weaker, the Swiss manufacturing PMI slumped last month to 48.2, lowest since August 2009, from 51.7 in August, 53.5 in July and 54.4 in June.  Swiss retail sales in August were 1.9% lower in volume terms in August than a year earlier.

Sweden’s factory PMI score of 48.1 was marginally better than forecast but below 50 for a second straight month and 0.6 points lower than the August reading.

Denmark’s PMI improved to 56.5 from 54.4 in August.  Danish retail sales were only 0.2% higher in August than a year earlier.  The Norwegian PMI dropped 0.7 points to 54.8. 

In eastern Europe, the Czech PMI fell to 52.3 from 53.4 in July and August.  Poland’s index dropped to 50.2 from 51.8 in August and 52.9 in July.  The Hungarian PMI printed at 50.8, between August’s 50.1 and July’s 52.1.  Russia’s PMI was 50.0 on the nose, a totally neutral reading after 49.9 in August.

Australia’s manufacturing PSI dropped a whole point to a lowly score of 42.3. 

China’s services purchasing managers index, the one compiled by HSBC, had a composite score of 51.5 after 50.4 in both July and August, and a service-sector reading of 53.0 in September after having spiked downward from 53.5 in July to 50.6 in August. 

India’s manufacturing PMI, however, inched closer to contraction territory with a reading in September of 50.4 after 52.6 in August.  India’s trade deficit in August of $14.0 billion was 26% greater than the July deficit.

Turkey’s manufacturing PMI worsened 2.8 points to 51.5.  Turkey also released CPI and PPI data today.  Consumer price inflation slowed to 6.2% in September from 6.7% in August, while the 12-month rise of the PPI was 12.2%, up from 11.0% in the year to August.

The Saudi PMI showed slower positive growth in manufacturing with a reading of 54.5, down 3.4 points to a new low.  Taiwan’s PMI printed well below 50 at 44.5 after 45.2 in August, 46.1 in July, and 49.9 in June.

Canada’s manufacturing purchasing managers index firmed marginally further to 55.0 in September from 54.9 in August and 53.1.  Brazil’s PMI moved further below the 50 neutral threshold, dropping to 45.5 from 46.0 in August, 47.8 in July, and 49.0 in June.  Brazil’s trade surplus narrowed 20.7% in September to $3.1 billion.

Retail sales in Hong Kong were 20.7% above a year earlier in August.  CPI inflation in Thailand slowed to 4.0% in September from 4.3% in August.

U.S. construction spending reversed a 1.4% drop in July by rising 1.4% in August.  The on-year advance in construction spending was only 0.9%, however.  U.S. motor vehicle sales will be reported today.

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



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