Relentless Concern about Europe

January 5, 2012

Risk aversion is persisting.  It can be seen in an 0.8% overnight drop of the euro against the dollar.  The euro traded below its 2011 low.  The dollar also gained 0.8% against the Swissie and kiwi, 1.1% versus the Australian dollar, and 0.6% vis-a-vis the loonie and sterling.  The greenback even edged 0.1% higher against the yen and yuan. 

Greek Prime Minister Papademos warned that Greece could be forced to leave the common currency union if the next aid installment isn’t received, and that support is dependent on the acceptance of more austerity.

A Japanese official asserted that intervention policy remains unchanged.  The official also reaffirmed guarded support for European efforts to counter the debt crisis.

Results of a 4-part French long-term bond auction totaling EUR 7.96 billion proved mixed.  Bid-cover on the 10-year was weaker.

The Hungarian forint plumbed to a record low after officials failed to sell as many one-year treasury bills as hoped.  The auction produced a much higher yield near 10%, generating speculation that the central bank might increase its benchmark interest rate again.

Romania’s central bank, in contrast, cut its key interest rate by an expected 25 basis points to 5.25%.

Share prices fell 0.8% in Japan, 1.0% in China, 1.1% in Australia, and 1.5% in Pakistan.  In Europe, the Paris Cac has swooned 1.3%, while the German Dax and British Ftse are each 0.8% softer.

Gold prices are steady at $1612.10 per ounce.  Oil prices slid back 0.8% to $102.36 per barrel after advancing sharply earlier this week.

German retail sales produced an unexpected volume decline of 0.9% in November after dipping 0.2% in October.  Sales were just 0.8% greater than in November 2010, and the October-November level of real sales was 0.3% less than in 3Q11.

French consumer sentiment stagnated at an unchanged reading of 80 last month.  Analysts were looking for some improvement.

Euroland reported PPI and industrial order figures.

  • The producer price index firmed 0.2% in November, a shade more than forecast, but the 12-month increase continued to subside and reached 5.3% versus 5.5% in the year to October and 6.1% last July.  Non-energy producer prices dipped 0.1% on month, trimming the on-year increase by 0.2 percentage points to 3.0%.  Energy prices went up 0.9% and by 12.3% from November 2010.
  • After plunging 7.8% in September, industrial orders rebounded only 1.8% in October, a bit less than half what analysts were anticipating.  Orders were 3.1% lower than their 3Q average level and just 1.6% greater than in October 2010.  While German orders climbed 5.5%, orders fell by 3.6% on month in Portugal, 2.2% in Spain, 2.3% in Greece, 1.1% in Italy, and 3.0% in Ireland.  Europe has a two-speed economy that’s running between second gear and reverse.

There was a spate of more purchasing manager survey results announced.

  • Japan’s economy has stabilized but is not yet really growing.  The service-sector PMI and composite PMI of both manufacturing and services printed in December at 50.4 and 50.1, respectively, up from 49.5 and 48.9 in November and 44.3 and 46.7 in August.  A reading of 50 defines the line separating activity that is expanding from activity that is contracting.
  • Australia’s service-sector PMI fell by 1.3 points to 47.7 in December.  Sub-50 scores also occurred in October and November.
  • China’s service-sector PMI edged down 0.2 points to 52.3 as business sentiment remained very depressed.  A composite PMI of 50.8, although up 1.9 from the November reading, embodied the weakest labor market component in 33 months.
  • The Hong Kong service sector PMI rose a full point to 49.7 but was nevertheless the fifth consecutive sub-50 reading.
  • Britain’s service sector PMI report was reassuring in an economy that many fear could slide into recession this year.  The overall index climbed 1.9 points to a 5-month high of 54.0, suggesting a 0.3-0.4% fourth-quarter rise in service-sector GDP.  However, the forward-looking business sentiment component was at its weakest level since March 2009.
  • Ireland’s service-sector PMI dropped 4.3 points between November and December and, at 48.4, was the only sub-50 score of 2011 in Ireland.
  • Germany’s construction purchasing managers index fell 0.6 points to 49.3 last month.  New business fell at the fastest pace since February 2010.

Japan’s monetary base slowed to an on-year increase of 13.5% in December.  The current account component, over which the Bank of Japan exerts most control, decelerated to 61.3% from 99.1%.  The base rose 15.2% in 2011 as a whole because of quantitative easing after a gain of 4.8% in 2010.

Japanese motor vehicle sales in December were 21.3% greater than a year earlier.

Australia’s goods and services trade surplus narrowed to a 9-month low of AUD 1.38 billion in November from AUD 1.418 billion in October and AUD 2.012 billion in September.  Analysts were expecting a bigger surplus in November than October.

Finland’s November trade deficit of EUR 260 million was 58% smaller than the October shortfall.  Iceland’s ISK 7.9 billion November trade surplus was very similar to October’s size. 

Ireland and Hungary reported double-digit rates of unemployment, respectively 14.3% and 10.6%.  Italy’s jobless rate of 8.6% in November was a tad greater than in October and exceeded expectations.

Dutch consumer price inflation slowed to 2.4% in December from 2.6% in November.  The headline and core rates of Filipino inflation last month were 4.2% and 3.4%.  Consumer prices in Taiwan were 2.0% higher than in December 2010, and the WPI December-over-December pace was 4.3%.

Brazilian industrial production increased 0.3% in November but stayed 2.5% below its year-earlier level.

Scheduled U.S. data today features the December service-sector purchasing managers index and includes weekly jobless claims and the monthly ADP estimate of private employment growth.  Canada will be releasing producer prices and raw material prices.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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