Sobering Perceptions After Yesterday’s Euphoria

December 1, 2011

Investors now see yesterday’s concerted central bank actions as the non-panacea that it was.  ECB President Draghi called the move a “limited action” to ensure that monetary policy gets transmitted.  He also reiterated the view that the main responsibility lies with governments in Europe that must move to a more unified single fiscal policy. 

The dollar nevertheless eased another 0.4% against the euro and Swiss franc and is 0.2% softer versus sterling and the yuan.  The loonie edged up 0.1%, but the Australian and New Zealand currencies have lost 0.4% and 0.1% against the greenback.  The yen slid 0.2% against the dollar and touched a 2-week low versus the euro.

Impressive share price advances occurred in the Pacific Rim in that region’s first reaction to the central bankers’ initiative.  Equities rose 1.9% in Japan and the Philippines, 3.7% in South Korea, 5.6% in Hong Kong, 2.5% in China, 4.0% in Taiwan, 2.6% in Australia, 2.4% in Thailand, 2.2% in Singapore and India, and 1.8% in Indonesia.  In Europe, however, stocks gave back 0.5% in France and Germany and 0.4% in Great Britain.  Futures suggest a lower U.S. open, but much will hinge on the release of U.S. jobless insurance claims at 13:30 GMT.

Successful sovereign debt auctions in Spain and France depressed long-term yields in those countries.  The 10-year British gilt yields rose six basis points in contrast.  JGBs are steady, while the 10-year German bund slid one basis point.

Oil prices slipped 0.2% to $100.19 per barrel.  Gold is steady at $1750.40 per ounce after a sharp advance on Wednesday.

Manufacturing purchasing managers survey results released today have been mostly downbeat.

  • All members of the euro area had sub-50 readings, connoting a contraction of activity in November, and many scored multi-year lows.
  • The whole euro area clocked in with a reading of 46.4, same as the preliminary indication and lowest since July 2009.  Within the common currency area, Germany’s index was 47.9 after 49.1 in October, 50.3 in September and 54.6 last June.  The French index was revised down another 0.3 points to 47.3 and compares to readings of 48.5 in October and 52.5 last June.  After a 28-month low of 43.3 in October, Italy’s PMI printed in November at 44.0 and in July at 50.1.  The Spanish factory PMI reading was 43.8, a tenth less than in October and signaling a pronounced recession.  In Greece, matters are even worse as attested by a PMI reading of 40.9 after 40.5 in October.  Greece has had 27 consecutive PMI readings below 50.  The Dutch PMI fell two points to 46.0, and Austria’s reading was at a 28-month low of 47.6.  Ireland, the only euro zone economy to score above 50 in October, shot a 48.5 in November.
  • The British PMI fell slightly to 47.6, lowest since June 2009, from 47.8 in October and 50.8 in September.
  • Two Chinese manufacturing PMI surveys are taken each month.  The government’s “official” CFLP fell below 50 for the first time since March 2009 to post a reading of 49.0 after 50.4 in October.  The HSBC’s PMI survey produced a score of 47.7 after 51.0 with orders at a 32-month trough.  The two reports point to greater priority for supporting growth and, with signs of reduced strain on prices, less emphasis on fighting inflation.
  • The Swiss PMI of 44.8 was significantly below expectations and down from 46.9 in October, 48.2 in September and 51.7 in August.
  • Sweden’s reading of 47.6 also fell well shy of forecasts and was 1.4 points lower than the October reading.
  • The Norwegian PMI dropped 1.6 points to 48.6 and was 7.9 points below the reading in July.  The Danish index rose 4.1 points to 47.7.
  • Poland’s index fell below 50 for the first time since October 2009, reaching 49.5 versus 56.3 eleven months earlier.
  • The Czech PMI dropped by 3.1 points to 48.6.
  • Hungary posted a PMI of 47.8, down from 48.2 in October and 50.8 in September.
  • Russia provided one of the upbeat stories, with a PMI of 52.6, best since March and up from 50.4 in October and 49.8 in July.  It helps that oil prices are again climbing.
  • India scored a 51.0, a full point less than in October.  September saw India’s PMI plumb to a 30-month low of 50.4.
  • Turkey is showing some resilience with a PMI of 52.3, albeit down from 53.3 in October.
  • South Korea’s PMI fell to 47.1 from 48.0, and Taiwan’s index edged only marginally above October’s 33-month low of 43.7 to reach 43.9.
  • Australia’s PMI improved only 0.4 but remained below 50 at 47.8 in November.
  • Brazil’s PMI stayed below 50 but improved by 2.2 points to 48.7.

Japanese non-mini motor vehicle sales in November were 24% greater than a year earlier.  Stock and bond transactions generated a net 306 billion yen inflow last week after a JPY 1.6 trillion outflow in the week to November 19.

The central bank of The Philippines left its key interest rate unchanged as expected at 6.5%.

Australian building permits fell 10.7% on month in October following a 14.2% drop in September and were 29.8% below the October 2010 level.  Australian retail sales rose just 0.2% in October, but the 12-month rate of increase improved to 2.8%.  Commodity prices in Australia rose 0.2% in SDR terms but held on to a 12-month rate of rise that exceeded 15%.

Swiss real GDP posted the slowest quarterly growth rate since 2Q09, rising just 0.2% last quarter.  On-year growth dropped to 1.3% from 2.2% in the year to 2Q11.

Danish retail sales stagnated in October and were 3.6% lower than a year earlier.

Indonesian consumer prices rose 0.3% on month and by a slightly lower 4.2% on year in November.  South Korean and Thai consumer prices also recorded a 4.2% 12-month rate of CPI inflation in November.  Thailand’s PPI was unchanged on month and 3.5% higher than in November 2010.

India’s $19.6 billion trade deficit in October was twice the size of the deficit in September.  Indonesia posted a $1.2 billion trade surplus in October.

Aside from weekly jobless insurance claims, the United States will be reporting auto sales, construction spending, and its manufacturing PMI survey results.

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

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