More Bad News for Europe

October 18, 2011

The ZEW Institute released its October figures for Investor expectations toward Germany and Europe and suggested that Germany already may be in technical recession. The data were much worse than anticipated.

  • For Germany, the expectations index worsened five points to minus 48.3, the lowest level since November 2008.  Such had been at +3.1 in May.  The index for German current conditions printed at 38.4, down from 43.6 in September, 53.5 in August and 90.6 in July.
  • Euroland’s investor expectations index was minus 51.2 after minus 44.6 in September, minus 40.0 in August and +13.6 in May.  Current conditions fell by 3.8 points to minus 31.7.  Such had been in the black at +2.3 as recently as July.

Moody’s said that it may soon reassign France’s Aaa credit rating outlook to negative for a possible downgrade because of worsening debt prospects.

EU car registrations were up just 0.7% on year in September, down from a 7.7% rise between August 2010 and August 2011.

Greek unemployment of 16.5% exceeded expectations.

Italy posted a larger-than-anticipated EUR 5.39 billion current account deficit in August.

British CPI inflation accelerated to a record 5.2% in September.  Such tied the September 2008 peak and was 0.3 percentage points greater than forecast.  Inflation had been at 4.5% in August.  Consumer prices were rose 0.6% on month for a second consecutive month.  Core CPI advanced to 3.3% from 3.1% in both July and August.  Retail price inflation of 5.6% was at its highest point since June 1001. 

Markets continue to reel from remarks yesterday by senior German officials not to expect the October EU summit in Brussels to solve the EU debt crisis.  The Paris Cac, British Ftse, and German Dax have lost another 1.7%, 1.2%, and 0.5% so far today.  This is a familiar role for German officials, who compulsively throw cold water on the market every time investors think a serious plan is at hand to recapitalize banks and prevent contagion.  One can only conclude that there are elements in the Merkel administration who do not want the crisis to end.

In the Pacific Rim earlier, equities fell by 4.2% in Hong Kong, 2.8% in China, 2.1% in Australia, 2.9% in Indonesia, 2.0% in Singapore, 1.9% in Thailand, 1.7% in Malaysia, 1.6% in Japan and India, and 1.4% in Taiwan, South Korea and The Philippines.

Currency movements have conformed to a risk averse pattern, with the dollar down 0.2% against the yen but up 0.4% relative to the kiwi, 0.3% against the euro, Swissie, and Australian dollar, and 0.2% against the yuan and Canadian dollar.

Gold and oil prices dropped by 1.1% and 0.6% to $1658.50 per ounce and $85.86 per barrel.

The yields on ten-year German bunds and British gilts fell by seven and five basis points.  That on 10-year Japanese sovereign debt was steady.

Chinese real GDP climbed 2.3% on quarter and 9.1% on year in the third quarter.  These gains were somewhat less than forecast, and on-year growth was the lowest since a similar advance between 3Q08 and 3Q09.  In between, GDP growth had crested at 11.8% in the first quarter of 2010 before slowing to 9.8% in 4Q10, 9.7% in 1Q11 and 9.5% in the year to 2Q11. 

In contrast to the softer-than-forecast GDP data, Chinese industrial production, retail sales, and fixed asset investment all surpassed expectations in September.

  • Retail sales growth from a year earlier accelerated to 17.7% from 17.0%.  That tied June for the best month since January.
  • Industrial production grew 13.8% in the year to September after a 13.5% rise in August.  Analysts expected a 13.3% reading.
  • Fixed asset investment in the first nine months of 2011 was 24.9% higher than a year earlier. Such is decelerating slowly, having risen 25.6% on year in the first half of 2011.
  • Home prices in China dipped 0.4% on month and showed a smaller on-year advance of 3.3% in September.

Japanese machine tool orders were 20.1% higher than a year before in September, down from 20.3% growth in August and the lowest gain since October 2009.

Japanese department store sales in September were 2.4% below a year earlier.  That was the third negative result in a row and a deeper drop than the 1.7% decline in the year to August.  Tokyo department store sales fell by 3.6% on year in September.

The Reuters Tankan monthly gauges of business sentiment weakened in October by two points for manufacturers to +6 and by also two points to +1 for non-manufacturers.

Minutes from the Reserve Bank of Australia’s policy meeting earlier this month observe that core inflation has picked up more gradually than thought previously.  The minutes called the current monetary policy stance “appropriate.”   The cash rate has been 4.75% since a 25-basis point hike in November 2010.

Scheduled U.S. data today include the Treasury capital flow figures, the NAHB housing index, producer prices, and weekly chain store sales.  Fed Chairman Bernanke speaks in Boston today. 

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

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