Fragile End to a Fragile Week in Financial Markets

March 23, 2012

The euro is trading 0.4% higher at $1.3252 in spite of new evidence released yesterday that Europe is in recession. 

The dollar has also declined 0.6% versus the Swiss franc, 0.5% relative to the kiwi, 0.3% against sterling, and 0.2% versus the Aussie dollar.  The Canadian dollar is exactly at parity against the greenback, which has firmed 0.1% against the yuan and yen.

Equities recovered 1.4% in Sri Lanka and 1.0% in India but have fallen by an addtional 1.1% in Japan and Hong Kong, 1.2% in China, and 0.7% in New Zealand.  In Europe, the Paris Cac and German Dax are 0.3% and 0.2% weaker, while the British Ftse is unchanged so far.

Ten-year British gilt and German bund yields slipped four and three basis points, while JGBs are steady.

Gold and oil prices have risen by 0.5% and 0.6% to $1650.50 per ounce and $105.94 per barrel.  Copper, zinc and silver prices also have rebounded somewhat.

China’s index of leading economic indicators advanced 0.5% last month, half as much as in January.  Smaller net profits were reported by the Agricultural Bank of China.  The Hong Kong Monetary Authority’s semi-annual review highlights the effects on the former British colony of China’s slowdown.

Singaporean consumer prices dipped 0.3% last month and posted a smaller-than-expected 4.6% rise from February 2011.  The Filipino current account surplus of $1.8 billion last quarter was 24% narrower than that in 3Q11.  Malaysian consumer prices were unchanged last month and recorded a 2.2% on-year rise.

Japanese stock and bond transactions last week as in the previous week generated a minuscule net capital inflow.  As Japan’s fiscal yearend nears, there were huge sales by foreigners of Japanese bonds totaling JPY 1.067 trillion and by Japanese of foreign bonds equal to JPY 722 billion.

Japan’s cabinet plans a temporary extra budget to keep the government running at the start of the upcoming fiscal year, since the Diet has not yet approved the FY 2012-13 budget.  Bank of Japan Governor Shirakawa urged patience in awaiting the impact of recently imposed monetary stimulus.

Consumer confidence in the euro area improved 1.3 points to a reading of minus 19.0 in March.  While the best score since last August, such was 8 points weaker than in March 2011.  ECB President Draghi reiterated the central bank’s opposition to eurobonds at this time.

In Germany, regional elections this Sunday are being held in the Saarland because the government there fell in January.  The CDU has dominated that government for the past 13 years but is in danger of losing power.  The Free Democrats are not expected to do well.  In May, regional elections are scheduled for the 6th in Schleswig Holstein and for the 13th in Germany’s largest region, North Rhine Westphalia.  Analysts are watching these three local contests for clues to how the CDU/FDP Merkel government might do in next year’s national parliamentary election.

French business sentiment rose three points to a score of 96 in March according to the INSEE statistical agency.  That was the best reading since November but well down from highs of 109 in June, April and March of 2011.  The government projects a flat economy this quarter followed by growth of 0.2% in 2Q12.  Presidential elections are set for April 22 and a run-off round between the two top vote-getters on May 6.

Italian retail sales rose 0.7% in January, much more than forecast, but posted a ninth straight on-year decline.  Sales were 0.8% lower than in January 2011.

Producer prices in Spain increased by 0.6% in February, trimming the 12-month advanced by 0.3 percentage points to 3.4%. Irish wage inflation accelerated to 11.3% last month from 9.1% in January. 

Britain’s Nationwide index of consumer confidence slid 3 points to 44 in February.  While down from 55 last May, such compared favorably to a reading of 38 in February 2011.  According to the British Bankers Association, mortgage loans totaled 33.1K last month, 11% fewer than forecast.  The value of net mortgage lending was 1.2% greater than a year earlier.

Canadian CPI inflation ticked up to 2.6% in February from 2.5% in January despite a seasonally adjusted monthly increase of just 0.1%.  Gasoline and food prices showed on-year advances of 8.9% and 4.1%.  Core inflation firmed 0.2% on month and accelerated to 2.3% on year from 2.1% in the 12 months to January.  Inflation in Canada has proven more resistant to disinflation than assumed last fall.

U.S. new home sales will be reported today.  Existing home sales released Wednesday revealed a 0.9% drop from January but an 8.8% increase from February 2011.

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

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