Eurogroup Decision Delayed on Aid to Greece

October 4, 2011

A Eurogroup meeting scheduled for October 13 was postponed that would have approved the next EUR 8 billion loan tranche to Greece.  Reaction to Greek budget overrun revelations have been understandably poor.  More austerity from Athens is urged.  A decision on aid is not expected for about six weeks.

After leaving the Official Cash Rate at 4.75%, the Reserve Bank of Australia released a dovish statement that switched the policy bias to easing from tightening.  The Aussie dollar fell 0.3% against its U.S. counterpart in response. 

The greenback otherwise shows a 0.4% advance against sterling and very little movement relative to other key currency.  The dollar dipped 0.1% against the euro and Swissie and edged 0.1% higher against the yen and kiwi.  The loonie and yuan are unchanged.

Stocks were hammered in the Pacific Rim and Europe on continuing risk aversion.  Equities plunged 3.5% in Hong Kong, 3.5% in Singapore, 2.4% in Indonesia, 1.8% in India, 3.6% in South Korea, 1.1% in Japan, 0.9% in Vietnam and The Philippines, and 0.6% in Australia.  Share prices are down 2.9% in Germany, 2.2% in Great Britain, 2.1% in France and 1.3% in Switzerland.  The remaining possibility of recession avoidance is disappearing as markets spiral downward.  The lack of new government policy steps to support growth is fanning panic.

Ten-year sovereign bond yields dropped ten basis points in the U.K., nine bps in Germany and four bps in Japan.

Crude oil prices are at a one-year low, having fallen overnight by another 1.5% to $76.48 per barrel, but gasoline prices have not been especially responsive to this potential mitigating economic support.  Gold prices firmed 0.7% to $1669.80 per ounce.

On-year growth in Japan’s monetary base accelerated to 16.7% in September from 15.9% in August and 15.0% in July.  The strong pace of Japanese high powered money growth has not been reflected in the money stock or the growth of bank lending, each of which has remained very low.  A similar pattern can be seen developing in the United States, where a liquidity trap also exists.  The proper policy tool in times such as the present is fiscal policy, but that isn’t happening.

Another indication that Japan is still not free of deflation came in the release of labor cash earnings, which were 0.6% lower in August than a year before.

Euro area producer prices slid 0.1% in August and posted an on-year increase of 5.9%, down from 6.1% in July.  In the three months between May and August, the PPI increased at just a 1.4% annualized rate, however.  In August, energy producer prices fell by 0.7% on month, while all other producer prices collectively firmed 0.1%.

Australia’s trade surplus widened 70.6% in August to a 13-month peak of AUD 3.1 billion.  Such was lifted by an 8.0% monthly jump in exports.  Australian commodity prices increased 1.0% in September and 27% on year, led by higher prices for coal and iron. Aussie building permits shot up 11.4% in August, the most in 16 months, but were 5.5% lower than a year earlier.  Business sentiment in New Zealand edged down two points to a reading of 25 in the third quarter.

Indonesian CPI inflation slowed to 4.6% in September from 4.8% in August, and core decelerated to 4.9% from 5.2%.  This improvement bodes well for unchanged monetary policy this month in Indonesia.  Thai PPI inflation of 5.6% in September was 0.3 percentage points lower than in August.  South Korean CPI inflation dropped more sharply than forecast last month, printing at 4.3% after 5.3% in August.  Core South Korea CPI slowed to 3.9% from 4.0%.

South Korea’s purchasing managers index for manufacturing moved further beneath the 50 line of neutrality, dropping to 47.5 in September from 49.7 in August and 51.3 in July.  This statistic was reported a day later than other PMIs because of South Korea’s holiday on Monday.

The U.K. construction purchasing managers reading of 50.1 in September implies stagnation.  It was the weakest reading of 2011 and 2.5 points lower than in August.  The construction PMI stood at a healthy 56.4 six months earlier and recorded quarterly average scores of 53.6 in 2Q11 and 55.5 in 1Q11.

Romanian PPI inflation slowed to 8.7% in September and lay between July’s 8.4% and August’s 9.3%.

In this comparatively light day from a data-release standpoint, scheduled U.S. reports will cover factory orders and weekly chain-store sales.  Fed Chairman Bernanke testifies before the JEC.  The data action picks up after today, with attention focused on the troika of U.S. labor market statistics on Wednesday, Thursday and Friday and the policy meetings of the ECB and Bank of England set for Thursday.

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

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