Europe Burning… and Draghi No Help

November 18, 2011

Although the dollar has given back some gains, stock markets in Asia and Europe tell the story of a euro debt crisis that’s still raging and threatening to drag the rest of the world down with it.

The dollar fell overnight by 0.7% against the Swissie, 0.5% versus sterling, 0.4% relative to the euro, 0.3% against the yen, loonie and Australian dollar, and 0.1% versus the kiwi.  A warning by a Chinese central bank advisor about yuan depreciation sent such down 0.1% against the dollar.

Equities fell by 2.1% in China and Taiwan, 1.9% in Australia, 1.7% in Hong Kong and Singapore, 1.2% in Japan, 1.0% in Indonesia, 0.9% in Thailand and New Zealand, 0.8% in Malaysia and 0.6% in India.  The British Ftse has lost another 1.0%, and stocks in Germany and France have softened 0.7% and 0.4%.

The ten-year British gilt yield slid two basis points.  Bunds are steady, and peripheral spreads are not wider than yesterday.  The ECB has been buying more peripheral bonds, but the effectiveness of the so-called SMP facility has been undermined by talk in the marketplace of an internal ECB limit on how much can be purchased each week.  ECB officials thus far have not denied the rumor.

Gold and oil prices firmed by 0.6% and 0.3% to $1730.20 per ounce and $99.13 per barrel.

ECB President Draghi stuck to the dogma that the central bank mustn’t take any risks with the credibility of its mandate to deliver price stability.  That means not accepting a role as lender of last resort.  Bundesbank President Weidman said the euro area “no bailout clause” must be obeyed.  Another ECB official, Gonzalez-Paramo, said quantitative easing isn’t possible there.  French and German political tensions, which developed this week, have not abated, and European governments still have not expanded the rescue fund as they promised to do four months ago.  Leaders elsewhere around the world, who clearly have a stake in containing Euroland’s debt crisis, have not threatened to put out the fire if the Europeans cannot or will not do the job themselves.  Investors are left to conclude that the problem will only get worse.

Only a couple of economic indicators are getting released today.  Spain holds national elections on SundayItaly’s senate delivered a vote of confidence in the new Mario Monti government.  Many officials have or will be speaking today, including British Prime Minister Cameron, German Chancellor Merkel, Almunia of the EU, and Dudley and Fisher of the Federal Reserve.

German producer prices firmed 0.2% in October and posted the smallest on-year advance (5.3%) since last December.  Non-energy producer price inflation fell to 2.8% from 3.1% in September and 3.3% in August.

Italian industrial orders and sales respectively tumbled by 8.3% and 5.4% between August and September.  Orders were 3.6% lower than a year earlier.  Italy recorded a EUR 3.5 billion current account deficit in September.

Portuguese producer prices slipped 0.3% last month and showed a year-over-year 5.5% increase, some as in September.

Malaysian GDP growth of 3.7% on quarter and 5.8% on year in 3Q11 exceeded expectations and was faster than the pace in the second quarter.

The current account of The Philippines shrank 71% on month to $208 million in October.

Today saw Day 2 of the ASEAN summit in Bali, in which U.S. President Obama held bilateral talks with several Asian leaders.  A monetary statement from Russia’s central bank, Bank Rossi, will arrive later today.

Canadian consumer prices in October rose 0.2% in October and by 0.3% seasonally adjusted.  On-year CPI inflation slowed 0.3 percentage points to 2.9%, and targeted core inflation ticked down a tenth to 2.1%.  Energy recorded a 0.6% monthly gain, while the non-food or energy CPI index only rose 0.1% last month.

The Canadian and U.S. indices of leading economic indicators get released today.  So does Belgian consumer confidence. 

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

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