A Further Liftoff in German Bund Yields

November 24, 2011

The 2.21% yield on ten-year German bund yields is 32 basis points higher than its level a week ago, underscoring widespread concern the the European Monetary System is headed for a break-up over the inability of politicians and bureaucrats to resolve the system’s immense dysfunctionality.

The United States is observing Thanksgiving today, but in Europe data were released for German and British 3Q GDP and the German IFO monthly business climate measure.  The GDP numbers were a second estimate in both cases, and the IFO report was better than expected.

The dollar has lost 0.8% against the Australian dollar, 0.5% relative to the kiwi, 0.4% versus the euro and yen, 0.3% against the Swissie, 0.2% versus the loonie, and 0.1% against sterling.  China’s yuan is 0.1% softer, continuing to trade near 6.35 per dollar.

Japan’s Nikkei tumbled another 1.8% to 8,165.  It began 2011 at 10,229, 73.7% below its end-1989 peak, and has dropped another 2064 points or 20.2% so far this year.  In other stock markets, there were gains today of 1.0% in India and Malaysia, 0.9% in Taiwan, and 0.4% in Thailand and Hong Kong but losses of 2.8% in Sri Lanka, 0.8% in New Zealand and 0.2% in Australia.  The German Dax and Paris Cac have traded 1.4% higher.  The British Ftse is up marginally.

Yields on ten-year British gilts and Japanese JGBs have firmed four and one basis points, respectively.

Oil and gold prices are 0.6% and 0.2% firmer at $96.72 per barrel and $1702.0 per ounce.

Geopolitical risks have surfaced.  North Korean officials threaten a sea of fire against their southern neighbor.  Some protestors were killed in Saudi Arabia.  Egyptian tensions continue to boil, and Russian authorities complained about U.S. desires to erect a missile shield to protect Europe.

Japan’s government retained its prior economic assessment that activity is picking up slowly while difficulties stemming from the Sendai earthquake remain.

German GDP expanded 2.0% at an annualized rate between 2Q and 1Q and by 2.6% from a year earlier after accounting for variations in the number of working days.  Quarterly expansions in non-annualized terms during 3Q were 0.8% for personal consumption, 2.9% for machinery and equipment spending by businesses, 0.6% for government spending, and 2.5% for exports.  Consumption accounted for the entire non-annualized 0.5% rise in GDP but only about a quarter of on-year overall growth.  Construction contracted 0.7%, and inventories exerted a 0.4 percentage point drag on the quarterly growth rate of GDP.

British GDP also rose 2.0% annualized last quarter, so Germany, the U.S., and the U.K. essentially experienced identical rates of growth in the summer.  U.K. consumption failed to expand, however, and exports fell 1.0%.  The bulk of growth in the U.K. came from business and financial services.  GDP was only 0.5% higher than a year earlier.

The CBI monthly survey of industrial trends in the U.K. fell another point to minus 19 in November and was twenty points weaker than in August.  It was the worst reading since October 2010.

The IFO business climate index for Germany in November was 106.6, up from 106.4 in October and better than street forecasts of 105.2.  There was a small rebound in expectations and no change in current conditions.  But the measures levels are much lower than last February, when the overall climate scored a 115.4 with current conditions 3.5 points higher than now, and expectations 13.4 points better than now.  This was the IFO index’s first rise in four months, and officials at the IFO Economic Institute accentuated the positive in saying that overall performance is still relatively good despite all the international turmoil.  The improvement occurred in construction and wholesaling.  Manufacturing and retailing had lower readings than in October.  The IFO services index worsened 2.3 points to a reading of 15.1.  Such crested at 33.0 last February.

Consumer sentiment in Italy surprised significantly on the upside, rebounding 2.2 points to 96.5 in November instead of dropping 1.4 points as predicted.

Swedish consumer sentiment of minus 7.4 in November was lower than forecast but a tick better than in October.

Swedish producer prices slid 0.3% in October and were just 0.3% higher than a year before.  The Irish PPI rose 0.3% that month and by 2.5% from October 2010.

Business sentiment in the Czech Republic fell by 2.9 points to 89.5 in November, and consumer confidence tumbled 7.9 points to 72.6.  Hungarian retail sales were unchanged in September and 0.3% firmer than a year before.

New Zealand reported a much smaller than forecast trade deficit in October of HKD 282 million after a shortfall of NZD 751 million in the previous month.  Exports rose, while imports fell.

Vietnam’s rate of consumer price inflation settled back to a still-elevated 19.8% in November.  Hong Kong’s trade posted a HKD 23.1 billion deficit in October, less than expected.  A cut of reserve requirements for a few rural Chinese banks was called an administrative move and not policy motivated.  South Korean consumer confidence improved three points to a six-month high of 103.0.

South African producer price inflation accelerated 0.1 percentage points to 10.6% in October.

Happy Thanksgiving!

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

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