European Worries Return

November 14, 2011

Risk aversion picked up anew.  The dollar is 0.2% softer against the yen but has advanced 0.6% against the euro, 0.8% versus sterling, 0.7% relative to the loonie, 0.4% against the Australian dollar and 0.3% versus the kiwi, Swissie, and yuan.

The Paris Cac, German Dax, and British Ftse have traded down 1.0%, 0.7%, and 0.2%.  Earlier, stocks in Asia had cued off Friday’s North American rally, with advances of 2.2% in Taiwan, 2.1% in China and South Korea, 1.4% in Singapore, Thailand and Indonesia, 1.9% in Hong Kong, and 1.0% in The Philippines.

Copper prices rose sharply, but those for oil and gold slipped by 0.7% and 0.5% to $98.34 per barrel and $1778.50 per ounce.

The yields on 10-year German bunds and British gilts fell by nine and seven basis points.  That on Japanese JGBs firmed a basis point.

Some toxic remarks over the weekend set the stage for a disappointing Italian five-year debt auction that fetched the highest yield since 1997.

  • Buba President Weidman complained about the use of monetary policy as a lender of last resort.
  • IMF Director Legarde warned of dire consequences if the European debt crisis isn’t solved quickly.
  • Moody’s said the present size of the EFSF (European Financial Stability Facility) is inadequate.
  • Berlusconi stepped down after the Italian parliament approved the latest austerity measures but refused to leave politics.
  • Sundry partisan remarks by Greek and Italian politicians underscored the daunting tasks faced by new prime ministers in Greece (Papademos) and Italy (Monti).  Both are technocrats by training and do not seem to have the right temperament to lead in the rough-and-tumble world of politics.
  • There was a denied rumor that the EFSF had to buy part of the Irish debt it sold last week because of insufficient demand.

Euro area industrial production sank 2.0% in September.  Weakness was widespread across countries and industries and trimmed the 12-month rate of increase to 2.2% from 6.0% in the year to August.  Output of capital goods and consumer durables plunged 4.2% and 3.8%.  Production fell 4.8% in Italy, 5.8% in Portugal, 3.5% in Ireland, 2.9% in Germany, 1.9% in France, and 1.2% in The Netherlands.  September output was 0.8% lower than the 3Q level.

Portuguese real GDP suffered a third straight quarterly drop in 3Q11, falling 0.4% and by 1.7% from a year before.

The preliminary estimate of Japanese 3Q national income accounts was reported.  Growth of 6.0% annualized was consistent with expectations and the strongest GDP gain since 1Q10.  GDP was still unchanged from the same quarter a year earlier and actually lower than the level in the third quarter of 2006, some five years earlier.  Among components of GDP, personal consumption advanced 3.9% annualized (saar) and accounted for 2.3 percentage points (ppts) of the growth in real GDP.  Exports, which previously in 2011 had been suppressed by damaged supply chains, soared 27.4% (saar), and net exports enhanced GDP by 1.7 ppts.  Inventory building lifted GDP by an additional 0.8 ppts, but public spending exerted a 0.1 ppts drag.  Residential and non-residential investment respectively rose by 21.7% saar and 4.4% saar.

The September plunge in Japanese industrial production was revised to 3.3% from 4.0%.  The inventory ratio increased 3.8%, and capacity usage slumped 3.6% that month.  Production was also 3.3% lower than a year before.  Economic momentum faded at the end of the summer, setting the stage for considerably slower GDP growth in 4Q than seen in the third quarter.

New Zealand retail sales volume jumped 2.2% last quarter, the most in almost five years.  The increase was three times more than expected and resulted in a 3.9% on-year increase.

Wholesale price inflation in India remained steady at 9.7% in October.  Inflation continues to be the main concern of Indian monetary officials.

Switzerland’s PPI/import price index slid 0.2% in October and was 1.8% lower than a year earlier.  Domestic producer prices eased 0.1%, while import prices fell by 0.5%.

Finnish consumer prices rose 0.2% on month and 3.5% on year in October.  Retail and wholesale sales recorded strong on-year gains in September.

The French current account deficit widened to EUR 4.0 billion in September from EUR 2.4 billion in August. 

No U.S. data releases are scheduled today.  Carney of the Bank of Canada and Constancio of the ECB speak publicly.

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

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