Momentum Shift in Europe

April 17, 2012

A troubled investor mood persisted in the Pacific Rim where share prices fell by 1.9% in Taiwan, 1.3% in China, 0.8% in Thailand, 0.4% in South Korea, 0.2% in Singapore and 0.1% in Japan.  The U.S. secret service scandal rippled further.

But news out of Europe kindled the willingness to take risk.  The Paris Cac, German Dax and British Ftse have risen 1.4%, 1.0%, and 0.8%.

Spanish bill auctions were better received than expected.  Yields rose, but so did bid-cover ratios.

The ECB reportedly has been purchasing peripheral bonds.  Spanish 10-year sovereign debt yields, which touched 6.15% yesterday, have dropped 30 basis points from that level.

The ZEW Institute investor sentiment indices for Germany and the euro area improved further in April, supporting the view that European economies are stabilizing and that any recession will be brief.  Germany’s ZEW expectations index rose to 23.4 from 22.3 in March, 5.4 in February, negative 21.6 in January and minus 53.8 in December.  Current conditions printed at a reading of 40.7 after 37.6 in March.  Euroland’s ZEW expectations index climbed 2.1 points to 13.1 in April after a 19.1 improvement in March from minus 8.1 in January.  December had seen the index at minus 54.1.  Euroland current conditions slid 0.6 points to minus 49.0.

Typical of greater risk taking, the dollar slipped 0.4% against sterling, 0.3% versus the loonie, 0.2% relative to the yuan and Aussie dollar, and 0.1% against the euro, Swissie, and kiwi.  The yen lost 0.2% against the greenback.

Likewise, 10-year German bund and British gilt yields rose by four and five basis points.  The 10-year JGB, however, slid another basis point to 0.93%.

Gold and oil prices rose by 0.4% and 0.6% to $1655.40 per ounce and $103.57 per barrel.

CPI inflation in the euro area remained at 2.7% for a fourth straight month in March.  The monthly 1.3% rise reflected a 1.6% jump in energy.  Core inflation ticked up to 1.6%; such had been either at 1.5% or 1.6% in the prior three months.

British CPI inflation gains in March of 0.3% from February and 3.5% from a year before were as expected.  Core inflation rose 0.4% on month and 2.5% on year.  The retail price index increased 0.4% from February and by 3.6% from March 2011.

House prices in Britain, formerly known as the DCLG index, rose 0.2% on month and 0.3% on year in February.  Its trend has been improving but remains modest.

Italy’s current account deficit of EUR 5.14 billion in February was slight more than 25% smaller than expected.  I

The minutes from the Reserve Bank of Australia’s April 3rd policy board meeting read dovishly.  Officials are prepared to cut the 4.25% Official Cash Rate next month if first-quarter consumer price inflation eases as much as expected.  In-target core inflation is expected over the forecast horizon.  Officials have reduced their forecast for Australian GDP growth and anticipate sub-trend global growth.

Australian motor vehicle sales rose 4.0% in March both from February and from a year earlier.

Japanese consumer confidence rose a full point to 40.1 in March, the best reading since February 2011, which was just before the Sendai earthquake.

Japanese industrial production in February was revised upward to a drop of 1.6% from minus 1.8% reported initially.  Production in the first two months of 2012 was 1.1% higher than the average 4Q11 level.  The inventory ratio and capacity usage sank by 2.7% and 1.7% in the latest reported month.

Japan’s population contracted 0.2% or 259K in the year to October 2011, the most in over 60 years.

The Reserve Bank of India eased monetary policy for the first time in three years and made a bigger 50-basis point cut in its repo and reverse repo rates to 8.0% and 7.0%.  However, officials signaled that room for further relief remains limited because of persistent upside inflation risks.

In Singapore, where monetary policy was tightened last week, the trade surplus dropped 55.5% on month to SGD 2.44 billion in March.

Scheduled U.S. data today feature housing starts and permits, industrial production, and weekly chain store sales.  Canada releases its monthly manufacturing survey and auto sales.  The Bank of Canada’s third scheduled interest rate policy announcement of 2012 will be released at 13:00 GMT.  The Central Bank of Chile also reveals its monetary policy decision today.  Both banks are expected to retain the status quo.  The IMF reports its lates economic forecasts today.

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

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