Another Ugly Day in the Marketplace Thanks to Europe
November 9, 2011
The embattled Italian Prime Minister Berlusconi agreed to resign once budget cuts and economic reforms are approved by parliament. Nevertheless, Italian sovereign debt yields are sharply higher. The five-year advanced to a crippling 7.14%, and the 10-year spread versus German bunds widened to as much as 536 basis points. Italian elections are likely in February, with Alfano leading the center-right instead of Berlusconi.
Greek politicians haven’t reached an agreement with Lucas Papademos to head a unity caretaker government. Papademos wants greater powers than the key parties are willing to grant. Without a prime minister, Greece can’t move expeditiously to agree to austerity and secure the next EUR 8 billion loan.
Germany’s Five Wisemen, like the U.S. council of economic advisors, said a mild recession is possible in Germany unless Europe’s debt crisis ends quickly.
European stocks have plunged 2.7% in Germany, 2.5% in France, and 1.9% in Great Britain.
The new wave of risk aversion has lifted the dollar by 1.8% against the Aussie dollar, 1.6% versus the kiwi, 1.4% against the euro, 1.2% relative to the loonie, 0.8% versus sterling and 1.0% against the Swiss franc. The dollar is 0.1% softer against the yuan and yen.
Trading before the latest European problems, Pacific Rim stocks were mixed overnight, with gains of 1.7% in Hong Kong, 1.3% in Pakistan, 0.9% in China, 1.4% in Indonesia and 1.2% in Japan and Australia but losses of 1.6% in Thailand (floods), 1.2% in India, 0.5% in Taiwan, and 0.3% in Singapore.
Oil and gold prices sank by 1.0% and 1.6% to $95.25 per barrel and $1781.50 per ounce.
China released October price, retail sales, industrial output, and business investment data.
- CPI inflation slowed to a five-month low of 5.5% from 6.1% in September. The drop was in line with expectations but nonetheless reassuring. Food price inflation decelerated 1.5 percentage points to 11.9%, while all other consumer prices posted a 12-month increase of 2.7%.
- The PPI was 5.0% greater than a year earlier, about 0.8 percentage points less than forecast and down from on-year gains of 6.5% in in September and 7.5% in June.
- Industrial production recorded a gain of 13.2% from October 2011, down from 12-month increases of 13.8% in September and 15.1% in June.
- Retail sales growth also slowed, posting a 12-month increase of 17.2% after 17.7% in September.
- Fixed asset investment was 24.9% greater than a year earlier in January-October, the same increase as recorded over the first nine months of 2011.
Japan had a current account surplus in September of JPY 1.585 trillion, down from JPY 2.018 trillion a year before. The seasonally adjusted current account surplus widened 82% on month to JPY 1.187 trillion, as exports increased 1.8% while imports slipped 3.6%. Because of portfolio and direct investment outflows in September, the “Basic Balance” posted a deficit of JPY 6.7 trillion versus JPY 3.7 trillion in September 2010. Japan’s customs trade in October 1-20 registered a deficit of JPY 340 billion versus a surplus of JPY 217 billion in the first twenty days of October 2010. Japanese stock and bond transactions last month generated a JPY 450 billion net outflow.
Japan’s economy watchers index, a gauge of retail activity, improved to 45.9 from 45.3 but was nonetheless the third consecutive sub-50 outcome. June (52.6) saw the only above-50 reading this year. March, when the Sendai earthquake hit, had the lowest score, 27.7. There were 14.1% fewer Japanese bankruptcies in October than a year earlier. Bank lending was unchanged on-year, however. Such had posted on-year drops of 0.8% in 2Q and 0.5% in 3Q.
Britain’s goods and services trade deficit widened to GBP 3.94 billion in September from GBP 2.726 billion in August. Services had an unchanged GBP 5.9 billion surplus, but the merchandise trade deficit hit a record of GBP 9.814 billion, as imports leaped 3.8% on month. According to the British Retail Consortium, shop prices posted a 2.1% on-year increase in October, lowest in ten months.
The CBI federation of industries projects that U.K. real GDP will expand just 0.9% in 2011 and 1.2% next year.
The Bank of France index of French business sentiment slid a point to 96 in October.
Greek consumer prices edged 0.1% higher in October and were 3.0% above a year earlier. Greek industrial output in September was 1.7% lower than a year before, but the 12-month drop in August had been 11.7%.
Swedish industrial production and orders respectively rose 1.3% and fell by 0.9% in September versus August. Denmark posted surpluses in September of DKK 12.0 billion in the current account and DKK 4.8 billion in the trade balance. Romania and Hungary respectively recorded a trade gap of EUR 741 million and trade surplus of EUR 742 million in September. Portugal’s third-quarter trade deficit was EUR 3.76 billion. Czech consumer prices rose 0.3% in October but posted a smaller 2.3% 12-month increase.
Australian mortgage and investment loans respectively increased by 2.2% and 1.9% between August and September. A gauge of Australian consumer confidence improved to a six-month high of 103.4 in November from 97.2 in October amid speculation that a rate cut may be coming soon.
South African factory output increased 0.2% on month and 7.2% on year in September. South Korea’s jobless rate slid to 3.1% in October, matching the lowest level since July 2008.
The United States reports weekly oil inventories and monthly wholesale inventories today. Bernanke and Tarullo of the Fed speak publicly. So do Van Rompuy and Barroso of the EU. Poland’s central bank will announce its latest interest rate decision; no change is predicted. Mexican producer and consumer prices are due as well, and so is the index of Canadian house prices.
Copyright 2011, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Berlusconi, Chinese economic data, Italian interest rates, Japanese current account
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