Hoping for Strong Action at EU Summit

December 5, 2011

Markets for now are giving the benefit of the doubt to an agreement at week’s end by European politicians to take stronger action to save the euro.

Equities are 1.1% firmer in Paris and show gains of 0.5% in Germany and Great Britain.  In the Pacific Rim, share prices were mixed, with declines of 1.4% in China and Sri Lanka and 0.3% in India and Singapore but rises of 0.8% in Australian, 0.7% in Hong Kong and 0.6% in Japan and New Zealand.

The dollar has eased 0.6% against the Australian dollar, 0.5% versus the kiwi, and 0.3% relative to the euro, loonie, and sterling.  The dollar is unchanged against the Swiss franc and yen and off 0.1% against the yuan.

The yields on ten-year British gilts and German bunds are two and five basis points firmer.  The JGB yield eased two basis points.

Oil prices advanced another 0.5% to $101.48 per barrel, whereas gold prices slipped 0.5% to $1743.40 per ounce.

The main data release of the day has been purchasing manager survey results in the services sector, and such reflect difficulty in many countries. 

  • The euro area’s service sector index was revised down three-tenths of a point to 47.5 in November. It had also been below 50 in October and September.
  • Euroland’s composite PMI printed at 47.0 after readings of 46.5 in October, 49.1 in September, 50.7 in August and 51.1 in July.  The trend suggest a contraction of GDP in the final quarter of 2011 of about 2.5% at an annualized pace.  This was the first in which Germany, France, Italy, and Spain all reported sub-50 readings on their composite PMIs since July 2009.
  • The German services PMI scored a 50.3, sharply below its preliminary indication of 51.4 and also below October’s 50.6.  Germany’s composite PMI printed at 49.4, a 28-month low.
  • The French services PMI bounced back to 49.6 from a 31-month low of 44.6 in October.  The composite French score was 48.8 versus 45.6 in October and 50.2 in September.
  • Italy’s services purchasing managers index of 45.8 in November was below 46.0 for a third straight month.
  • In Spain, Euroland’s fourth largest economy, the composite and services PMIs sank to 32-month lows of 38.2 and 38.6, signaling strongly negative growth there as well as in Italy.
  • Ireland, on the other hand, continues to expand, with above-50 readings of 52.7 on its services PMI and 51.2 on its composite index.
  • Outside of the euro area, Britain’s PMI in services improved unexpectedly to a reading of 52.1 from 51.3 in October.  But jobs were shed at the fastest rate in 15 months, and GDP is unlikely to show much change in the fourth quarter.
  • Sweden’s services PMI was again marginally below 50, printing off 0.1 point at 48.9.
  • Australia’s service-sector PSI index weakened further to 47.7 in November from 48.8 in October, 50.3 in September, and 52.1 in August.
  • China’s service-sector PMI according to the HSBC gauge fell to 52.5 from October’s 4-month high of 54.1.  China’s composite reading of 48.9 was the first sub-50 reading of this year and points to more monetary easing ahead.
  • Japan’s services PMI swung back under the 50 line between contraction and expansion, printing at 49.5 in November after 52.3 in October, 46.4 in September and 44.3 in August.  The Japanese composite PMI was also below 50 at 48.9 last month.
  • Hong Kong’s PMI recorded a fourth straight sub-50 score, printing at 48.7 after 49.0 in October.
  • India’s scores improved.  The services PMI was 53.2 after 49.1 in October and 48.9 in September, but price pressures were unfortunately worse than in October.  The composite Indian reading was 52.3 after 50.3 in October.
  • The Saudi purchasing managers index advanced by 1.4 points to 58.1 in November, while the United Arab Emirates scored a 52.5, down by 0.9 points but comfortably above 50.
  • The Russian PMI services reading of 54.8 was a four-month high.  So was the composite score of 54.6.

Retail sales in the euro area increased 0.4% in October but were unchanged from the average 3Q level and 0.4% softer than in October 2010.  The Sentix gauge of investor confidence in the euro area not surprisingly weakened further in December to a reading of minus 24 from minus 21.2 in November.

Finnish real GDP grew 0.9% last quarter and by 2.7% from 3Q10.  Personal consumption only went up 0.5%, however.  Spanish industrial production was 4.2% lower than a year earlier in October.

Job ads in Australia, which had fallen in four straight months, were unchanged in November.  Australian corporate earnings increased 4.8% last quarter, some 50% faster than assumed, and by 8.8% from a year earlier.  Expected inflation has subsided to 2.1% according to the TD-MI measure, and that is close to the floor of the 2-3% target range.

Turkish consumer price inflation accelerated more than assumed to 9.5% in November from 7.7% in October.  PPI inflation was at 13.7% after 12.6% in the year to October.

According to preliminary and incomplete results, parliamentary elections in Russia appear to have dealt Vladimir Putin a heavier-than-expected loss of seats.

The main focus all week will be on the summit of EU leaders in Brussels at the end of this week.  German Chancellor Merkel will be in Paris today in a face-to-face meeting with French President Sarkozy.

Scheduled U.S. data this Monday include factory orders as well as the Institute of Supply Management’s survey of non-manufacturing activity in November.

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

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