Pivotal Week Ahead for the EU Crisis

October 17, 2011

Amid mixed signals on resolving the EU debt crisis, investors are clinging to hope.  Equities and commodities are higher, but the euro has softened. 

The G20 wants a resolution by October 23rd.  The plan is expected to include a 50% haircut for bondholders, which major European banks are resisting, aid to Greece, a levered ESEF, and required recapitalizations of regional banks.

The dollar has recovered 0.5% against the euro and Swissie, 0.4% versus sterling and the Australian dollar, 0.3% relative to the kiwi, and 0.1% against the yen.  The loonie is unchanged, and the yuan has risen 0.1%.  Chinese Premier Wen said the yuan would be kept steady in the period ahead.

Stocks in the Pacific Rim advanced by 2.0% in Hong Kong, 1.8% in Indonesia, 1.7% in Australian and Thailand, 1.6% in Malaysia and South Korea, 1.5% in Japan and the Philippines, 1.4% in Taiwan, 1.3% in Singapore, and 0.5% in China.  So far in Europe, the German Dax, British Ftse and Paris Cac show gains of 0.8%, 0.9%, and 0.4%.

The yields on British gilts and German bunds dipped by two and one basis points, while that on Japanese JGBs is up a basis point.

Oil and gold prices rose 0.9% and 0.5% to $87.56 per barrel and $1690.70 per ounce.

Japan’s government downgraded its economic assessment this month, claiming that the pace of the pick-up in activity had decelerated.  A strong yen and softer global economic demand were cited.  This was the first downgrade since April.

Japanese industrial production was revised down 0.2 percentage points to a monthly rise in August of 0.6% following a 0.4% uptick in July.  Output in July-August was still 5.3% greater than the 2Q level, but August production was only 0.4% higher than a year earlier.  Capacity was unchanged in August, while capacity usage went up 2.4% on month.

Australian motor vehicle sales sank 1.5% in September, their first drop in four months, and were 1.3% greater than a year earlier.  Consumer loans rose 2.2% in August, while corporate lending increased 7.9%.  Building permits jumped 11.4% in August but were 5.5% lower than a year before.

New Zealand’s purchasing managers index for services dropped by 0.6 to 53.2 in September.  Singapore non-oil domestic exports fell 9.3% in September.  Turkish unemployment eased to 10.1% in July from 10.3% in June, and Turkey’s consumer confidence improved in September by two points to 93.7.  Department store sales in South Korea were 6.5% higher than a year earlier in September.

In September, Finnish producer price inflation slowed to 4.3% from 5.5% in August.  Danish PPI inflation slid to 5.9% from 6.6%.  Czech PPI inflation ticked down to 5.6% from 5.7%, and Icelandic harmonized CPI inflation rose to 5.6% from 5.0%.

Scheduled U.S. economic data to be released this Monday include the Empire State manufacturing index and industrial production.  Many companies release 3Q earnings reports this week.  Canada today releases motor vehicles sales and securities transactions.  On Tuesday, China will report retail sales, industrial production, corporate investment, and third-quarter GDP.  The U.S. NAHB index and Treasury TIC data are due Tomorrow, as is the ZEW barometers of investor sentiment toward Germany and the whole euro area.

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

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