Soft Data Out of Europe and a Downgrade of Italy’s Credit Rating

October 5, 2011

The dollar is somewhat weaker, with declines of 0.4% against the kiwi, 0.3% versus the Aussie dollar, 0.2% relative to the yen and loonie, and 0.1% against the euro.  The greenback is 0.2% firmer against the Swiss franc and up 0.1% relative to sterling.  The yuan is unchanged.

Equities fell 2.3% in South Korea, 0.9% in Japan, 0.8% in Taiwan and 0.5% in Indonesia, but they rose by 1.4% in Australia and 1.1% in Malaysia.  Despite some unsettling news, stocks in Europe have climbed 3.3% so far in Germany, 3.0% in France, and 2.2% in Great Britain.

China remained closed, and Hong Kong was closed.

The yields on 10-year German bunds and British gilts increased by seven and nine basis points.  The 10-year JGB dipped a basis point to 0.98%.

Oil prices advanced 3.2% to $78.07 per barrel.  Gold prices are 0.6% lower at $1606.30 per ounce.

Moody’s downgraded Italian sovereign debt by three notches from Aa2 to A2. 

Retail sales in Euroland dropped 0.3% in August and were 1.0% lower than a year earlier.  Non-food sales fell 0.6% on month and 1.3% on year.  Sales in July-August were unchanged from the 2Q average level.

British real GDP growth in the second quarter was revised downward to 0.1% (0.4% annualized).  GDP was only 0.6% higher than a year earlier.  Over the three quarters between 3Q10 and 2Q11, GDP was unchanged.  In the second quarter, real personal consumption fell 0.8% and exerted a 0.5 percentage point drag on the GDP growth rate.  A 1.1% increase of government outlays surpassed expectations, but a 0.3 percentage point drag from net exports was unexpected.  The GDP price deflator increased 0.4% on quarter and 2.4% on year.

Service-sector purchasing managers survey results for September were released for several economies.  A stalling pattern in growth is alleviating inflationary pressure.

  • Euroland’s services PMI swung below 50 for the first time in 25 months, printing at 48.8 versus a 49.1 preliminary estimate and 51.5 in August.  The 3Q average reading of 50.6 was the worst quarterly mean in two years and down from 55.5 in 2Q.  The composite PMI score of 49.1 suggests no growth in 3Q, and forward-looking elements like new orders point to negative growth in the final quarter of 2011.
  • Germany posted service and composite PMI readings of 49.7 and 50.5, each constituting a 26-month low.  The readings in July had been 52.9 and 52.5.
  • France scored a 51.5 on its service-sector PMI versus 56.8 in August and 50.2 on the composite survey after 53.7.    They were the lowest readings in 25 and 26 months, respectively.
  • Italy’s services PMI dropped 2.6 points to 45.8.  Its 3Q average reading was the lowest ever in this data series going back to 1998.  Italy’s composite PMI of 47.7 was at a 25-month low.
  • Spain’s composite (43.9) and service-sector PMI (44.8) signaled substantial contraction and were each at 26-month lows.
  • Although Ireland’s service-sector PMI of 51.3 was above August’s 51.1, its composite PMI reading of 50.8 was at a nine-month low.
  • Japan recorded a sub-50 composite PMI for a seventh consecutive time, with a 46.4 service-sector reading versus 44.3 in Augu8st 45.3 in July, and 45.4 in June.
  • Russia’s composite PMI hit a one-year low despite and 2.1-point rise of the services PMI to 46.4 in September.
  • India’s composite PMI showed an alarming 4.3-point decline to 50.2.  The services PMI of 49.8 was 4.0 points less than in August.
  • Australia’s PSI-services index slid to 50.3 from 52.1 in August.
  • The British survey was a rare bright spot.  The services PMI rebounded to 52.9 from an eight-month low of 51.1 in August but remained below July’s 55.4 reading.  Moreover, business expectations plumbed to a 2-1/2 year low.
  • The U.A.E. PMI bounced above August’s 15-month low of 50.9 to reach 52.1.
  • The JP Morgan global manufacturing PMI was 49.9 in September, sinking below the 50 line of neutrality for the first time since June 2009.

British shop price inflation remained steady at 2.7% in September.

Australian retail sales advanced 0.6% in August but only 1.8% from a year before.

Filipino CPI inflation ticked up to 4.8% in September from 4.7% in August.  Taiwan’s rates of 1.4% CPI inflation and 5.1% WPI inflation were respectively as expected and greater than expected in September.

The Irish jobless rate in September eased a tenth to 14.3%.

Scheduled U.S. data today include the ADP private employment estimate, the Labor Department JOLTS index, and the service sector purchasing managers survey results.  British Prime Minister Cameron will address the annual Conservative Party conference.  German Chancellor Merkel and U.S. Treasury Secretary Geithner also have public speaking engagements today.  Poland’s central bank will make an interest rate announcement and is expected to retain a 4.5% key rate.

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

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