Risk Aversion Gathering Further Momentum on a Key Week

March 6, 2012

Share prices slumped 2.2% in Hong Kong, 2.0% in Singapore, 1.6% in China, 1.4% in Australia, 1.1% in India, 1.3% in The Philippines, 0.8% in Taiwan and South Korea, and 0.6% in Japan.  In Europe, the German Dax and Paris Cac are off 1.5%, and the British Ftse has lost 1.1%.

Gold and oil prices are down by 1.0% to $1686.50 per ounce and 0.7% to $106.00 per barrel.

The 10-year British gilt and German bund yields fell four basis points each.  Peripheral bond spreads in the euro area have widened and remain at levels that cannot be sustained in the long run.  Japanese JGBs are steady at 0.99%, in contrast, even though Japan has the largest fiscal debt of anyone.  Indeed, S&P warned that it may downgrade Japan’s debt rating if growth prospects worsen.

The yen climbed an additional 0.5% against the dollar, which otherwise appreciated by 0.8% against the Australian dollar, 0.7% versus the kiwi, 0.6% relative to the euro, Swissie and sterling, and 0.5% against the loonie.  The yuan slid less than 0.1% and is hovering near 6.31 per dollar.

Investors are bracing for the strong possibility that a Greek credit event will be declared later this week and worry that such will trigger ripples of contagion.  Rumors surfaced that Greek authorities will move the March 8 voluntary PSI deadline backward.  Bank deposits at the ECB, which holds its monthly policy meeting on Thursday, swelled further to a record EUR 827.5 billion. 

For a second straight month, the Reserve Bank of Australia’s Official Cash Rate was left at 4.25%.  The OCR peaked at 4.75% where such stood for twelve months from November 2010 to November 2011.  Cuts of 25 bps each were administered in the final two months of 2011, and no policy meeting was held in January.  Today’s statement retained a bias toward easing, contingent upon a "material" slowdown of growth.

Australia recorded an AUD 8.37 billion current account deficit last quarter, 6% wider than expected and 44% bigger than the deficit in the third quarter.  There was a AUD 32 billion deficit in calendar 2011.

Japanese wage earnings were unchanged in January from a year earlier after posting a 0.1% on-year uptick in December. 

German construction got hammered by foul weather in February.  The construction purchasing managers index dived to a reading of 35.3 from 53.2 in January and an average score of 49.6 in the second half of 2011.

Euroland reported an unrevised 0.3% on-quarter contraction of GDP last quarter.  A small on-year 0.7% reported advance in GDP was also unrevised.  A number of members had lower GDP in 4Q11 than 4Q10 including Greece (down 7.0%), Portugal (off 2.7%), The Netherlands (off 0.7%), and Italy (down 0.5).  French and German GDP were 1.4% and 2.0% greater than a year earlier.  Spanish GDP fell 0.3% from 3Q11 but was 0.3% above its year-earlier level.  Spain has now slipped into recession.  Among key components of demand, consumer spending, government spending, and business investment fell last quarter by 0.4%, 0.2%, and 0.7%, and each was weaker than assumed.  In the year between 4Q10 and 4Q11, net exports enhanced GDP growth by 1.3 percentage points(ppts), while everything else including a 0.3 ppt drag from inventories impacted GDP negatively.

Among some key east European economies, GDP last quarter fell by 0.3% in the Czech Republic and by 0.2% in Romania.  GDP rose 1.1% in Poland and 0.3% in Hungary and Bulgaria. 

Britain’s Halifax house price index unexpectedly fell 0.5% in February and was 1.9% lower in December-February than a year earlier.  Same-store sales, a statistic compiled by the British Retail Consortium, posted a second straight decline of 0.3% in February.  Total retail sales according to the BRC were 2.3% higher than in February 2011.

In one respect, conditions have brightened.  JP Morgan’s composite world PMI improved to the best level in a year — reaching 55.5 in February from 54.5 in January and 52.7 in December.  For today, at least, investors prefer to dwell on the negatives, however.

Filipino CPI inflation slowed to 2.7% in February from 4.0% in January, and PPI inflation in that Asian economy eased to 1.1% from 1.6% the month before.

North American data today are limited to weekly U.S. chain store sales and the Canadian IVEY-PMI index.  The main attraction will be the Super Tuesday Republican presidential events.  There are primaries in Virginia, Tennessee, Ohio, Oklahoma, Massachusetts, Georgia, Idaho, and Vermont and caucuses in Alaska, Wyoming, and North Dakota. 

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

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