Euphoria Dissipating

October 28, 2011

Markets today show a lack of follow-through after Thursday’s euphoric relief rally.

The dollar recovered 0.4% against the Australian dollar, 0.3% versus the kiwi and Swissie, and 0.1% against the euro.  The greenback has slipped 0.1% against sterling and the yen and is steady against the loonie and yuan.

Asian stocks enjoyed further sizable gains of 1.4% in Japan, 1.7% in Hong Kong, 1.9% in China, 2.3% in Pakistan, 1.5% in Thailand, 3.0% in India and 2.0% in Singapore, the Paris Cac is unchanged, and the German Dax and British Ftse are only 0.5% and 0.2% firmer.  U.S. futures indicate a pull-back, and Australian share prices edged just 0.1% higher.

Oil and gold prices fell 1.3% and 0.6% to $92.70 per barrel and $1737.60 per ounce.

Ten-year sovereign debt yields have climbed two basis points in Germany and Britain and by three basis points in Japan.

Investors have a thirst for more details about the European debt agreement.  Typically much remains to be learned.  Will banks be able to fund themselves again?  Where is the ESEF funding coming from?  In a continuing environment of fiscal austerity and recession, can deficit targets be trusted?  Will monetary and fiscal policy be more supportive of each other in the Draghi regime?  Will China be Europe’s financial patron?

Japan released a number of economic indicators as it always does late each month.  Results were mixed.

  • The jobless rate fell to 4.1% in September from 4.3% in August and 4.7% in July.  Analysts expected an increase but instead got the lowest rate since January 2009.  However, employment was 0.5% less than in September 2010, matching August’s on-year drop.
  • A 4.0% plunge of industrial production in September surpassed analyst expectations and prompted a downgrade in the assessment of officials to “output appears to be flat.”  They previously were saying that it “has almost recovered from the Great East Japan earthquake.”  Industrial production was also 4.0% lower than a year earlier.  The inventory ratio leaped 4.2% on month and 9.6% on year.  Despite September’s decline, industrial output advanced 4.1% in 3Q as a whole.
  • Core CPI inflation of 0.2% in the nation in September was as expected, but core-core inflation (excluding energy as well as fresh food) remained negative at minus 0.4%.  Moreover, Tokyo core-core deflation in October intensified to minus 1.0% from minus 0.4% in September.  Tokyo statistics are more timely than the national ones and give a good heads-up on national trends.  In seasonally adjusted terms, national consumer prices in September fell 0.1%, with core and core-core posting drops as well of 0.2%.
  • Real household spending jumped 0.9% on month in September and posted a smaller-than-forecast on-year drop of 1.9%.

Market players are wondering too about the near-term direction of Chinese macroeconomic policy.  Recent chatter had leaned toward an easing of credit policy, but comments from officials continue to conflict one another and add to the confusion.

Producer prices in Singapore increased 2.0% last month, lifting the 12-month increase to 11.0% from 7.7% in the year to August.

British consumer confidence sank unexpectedly by two points to minus 32 in October, its weakest reading since February 2009.  At the darkest part of the Great Recession, consumer confidence only got as low as minus 37, which is just five points worse than current conditions.  By February 2010, such had improved to minus 14.

French real household spending fell 0.5% in September and 1.3% in on-year terms.  There was a 0.2% uptick between 2Q and 3Q.

Swedish retail sales slid 0.2% in September and 0.6% from a year earlier.  Dutch producer prices increased 0.6% last month and by 9.6% from September 2010.  Iceland’s PPI fell 0.6% last month but was 13.9% greater than a year earlier. Italian wages showed on-year increases of 1.7% in September and 1.8% in January-through-September.  Spanish CPI inflation edged down a tenth to 3.0% in October, while the Spanish jobless rate of 21.5% in 3Q continued to top the European leader board.

The United States releases personal income and spending, the employment cost index, and the U. Michigan gauge of consumer sentiment today.  The FOMC meets next week, as do central bank policymakers in Australia and Euroland.

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

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