Greece Takes Away the World’s Punch Bowl

November 1, 2011

Confidence in the EU summit agreement of October 26th had already begun to wane, but the decision by Greek Prime Minister Papandreou to submit to a voter referendum the EU deal including the additional austerity required of his country has sent world financial markets back into full crisis.  The outcome of this Friday’s referendum is touch and go.  In any case, the decision to resort to a referendum was not shared in advance with the other Euroland governments and thus underscores many fault lines.  It’s a sign that national interests are taking precedence of European ones.  Economic union, an absolute condition for long-term sustained monetary union, only becomes possible when the Greeks, French, Germans, Italians, and rest of the 330 million plus people thinks as Europeans first and their different nationalities second.  The referendum call also highlights the Greek Prime Minister’s fragile hold on political power.  For another thing, this is the third big EU rescue plan of 2011 to be exposed as a paper tiger days after being unveiled as a big bazooka.  With each ensuing flop, investors become less confident that the euro will survive.

In other important news today,

The Reserve Bank of Australia cut its official cash rate for the first time since 2009.  Many activities in Australia are expanding more slowly.  The terms of trade has crested, and inflation has subsided.  An elevated Aussie dollar concerns officials.  The OCR had been at 4.75% for the past year, up from its pre-October 2009 low of 3.0%.

British GDP expanded 0.5% in 3Q, about twice expectations.  Production went up 0.5%, and services increased 0.7%.  Construction fell 0.6%, however, and GDP was only 0.5% stronger than a year earlier.  Moreover, the British PMI index for October crossed decisively over the 50 expansion-or-contraction line of demarcation, falling to 47.4 from 50.8.  Following news of weaker consumer confidence in October, it’s apparent that the better third quarter was short-lived.

PMI indicies for manufacturing were released in countries not affected by the All Saints Holiday.

  • The U.S. reading of 50.8 remained above 50 but fell 0.8 to 50.6.  Prices dived 15 points to 41.0 a day before the FOMC decision.
  • Japan’s index of 50.6 in October after 49.3 was better than forecast.
  • The officials Chinese PMI fell 0.8 to 50.4.
  • The Australian index was below 50 for a fourth straight time but improved to 47.4 from 42.3 in September and an average reading of 43.7 in 3Q.
  • South Korea had another sub-50 score of 48.0 versus 47.5 in September.
  • Taiwan’s index fell to 43.7 from 44.5.
  • The Saudi index bounced up 0.4 points from a series low of 56.3.
  • The Swedish, Danish and Norwegian indices printed at 49.8,43.6 and 50.8.
  • The Swiss PMI printed lower than expected at 46.9 following readings of 48.2 in September, 51.7 in August, and 53.5 in July.
  • The Czech score of 51.7 was its lowest since December 2009.
  • Turkey’s index rose 1.8 to 53.3.
  • Russia’s rose to 50.4, the first increase since June.
  • Brazil reported a sub-50 score of 46.5.
  • Canada posted a 53.7, down from 55.0.

Euroland’s jobless rate increased to 10.2% in September from an upwardly revised 10.1% in August, and the CPI inflation rate remained at 3.0% in October instead of dipping a tenth as expected according to the preliminary report.

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


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