Evidence of Weakening Euro Area Sentiment and Disagreement on Means to Grow Europe

April 26, 2012

The boost to stocks from Fed Chairman Bernanke’s press conference didn’t last long.

  • Investors have taken from Bernanke that further stimulus measures will only happen if U.S. growth or inflation falters anew.
  • Euroland economic sentiment dropped 1.7 points to a reading of 92.8, matching last December’s score.
  • ECB President Draghi and French presidential candidate front-runner Hollande engaged in a public dispute over how to stimulate growth.
  • The Paris Cac and German Dax have traded 0.9% and 0.6% lower.  Share prices closed unchanged in Japan and New Zealand and so far show no change in Britain.  Stocks rose 0.8% in Hong Kong, 0.7% in Thailand, 0.4% in Indonesia, and 0.3% in Australia.

The yen climbed to an 8-day high of 80.78 per dollar and is currently 0.6% stronger overnight at 80.87.  Other dollar pairs have barely moved.  Indeed, the loonie, yuan, and Swiss franc are unchanged from Wednesday’s New York close.  The dollar has dropped 0.3% against the kiwi and has edged 0.1% softer versus the euro and sterling.

The yields on 10-year German bunds and British gilts slid five and three basis points, and a drop is indicated in Treasury yield futures.  The 10-year, for instance, is seen opening around 1.95%.

Gold prices rose 0.4% to $1648.00 per ounce.  Oil prices slid 0.2% to $103.95 per ounce.

In a speech last night, Treasury Secretary Geithner singled out the European growth and debt crisis and Iranian geopolitical tensions as risks to U.S. growth.

ECB President Draghi called for a growth compact in Euroland based on structural reform to stand alongside the fiscal accord.  Francois Hollande, the socialist candidate for the French presidency, applauded the new focus on growth but would achieve such by pulling back on austerity and letting the euro depreciate.  Opinion polls suggest Hollande will defeat Sarkozy by about a dozen percentage points in elections on May 6.  A Greek election is also scheduled that day.

Sentiment indices were released for Euroland.

  • Overall economic sentiment fell to 92.8 in April from 94.5 in March and 105.6 in April 2011.  92.8 matches the 4Q11 low in December.
  • The business climate index worsened by 0.24 points to minus 0.52 in April, the weakest reading since January 2010.  Such crested at 1.44 in February 2011.
  • Industrial sector confidence fell 1.9 points to minus 9.0. 
  • Service sector confidence dropped 2.1 points to minus 2.4 and was 1.9 points lower than forecast.
  • Consumer sentiment fell by 0.8 points to minus 19.9 and was 7.0 points worse than a year earlier.
  • Retail confidence rose 0.6 to minus 11.4, but confidence in construction dropped 0.7 to a depressed reading of minus 27.4.

British consumer confidence according to the Nationwide gauge improved to a 9-month high of 53 in March, up from 44 in February and 36 last October.

The CBI monthly survey of U.K. retailers produced a weaker reading of minus 6% in April, lowest since January and down from zero in March.

British mortgage applications, according to the BBA, declined 2.9% on month to 31.89K last month.  Gross mortgage lending fell 6.1% on year.

German CPI inflation apparently decelerated in April.  The decline among five reporting states was 0.5 percentage points (ppts) in one instance, 0.2 ppts in another, 0.1 ppts in two states, and zero in the case of Brandenburg.  Three of the five states had sub-2.0% 12-month increases.

Italian business sentiment in April slumped 1.6 points below a downward-revised March level to 89.5, lowest in over two years.  Italy is in recession.

Danish unemployment held steady at 6.2% last month. Finnish consumer confidence improved to 10.4 in April from 8.0 in March but was 7.4 points weaker than a year ago.  Swedish consumer confidence also rose, printing at +4.7% in April after a score of zero in March.  However, Sweden’s economic tendency index fell 0.9 points to 100.9 in April, as drops in manufacturing and retailing produced a drop in business sentiment.  Finally, Swedish producer price inflation decelerated further in March to a 12-month 0.2% pace.

The Reserve Bank of New Zealand left its Official Cash Rate unchanged at 2.5%, the level since a 50-bp cut in March 2011.  The decision was expected.

Likewise, the Hong Kong Monetary Authority as expected retained its base rate at 0.5%.

South Korean GDP growth accelerated to a quarterly 0.9% in 1Q12 but continued to trend lower in on-year terms to 2.8% from 3.3% in 4Q11 and 3.5% in 3Q11.

Singapore industrial production, which had been hit by last year’s flooding, rebounded unexpectedly in March with a 2.7% advance from February, but such was still 3.4% lower than a year before.

Australia’s indices of leading and coincident economic indicators were both unchanged in February.

Japan’s all-industry index dipped 0.1% in February on top of a 1.0% decline in January.  The two-month average level was 0.3% below the mean in 4Q11 and just 0.5% higher than a year earlier.  In February, drops of 1.6% in industrial production and 0.8% in government spending outweighed a 4.0% increase in construction, as service sector activity stagnated.

Japanese stock and bond transactions generated a JPY 1.058 trillion capital inflow last week after an inflow of JPY 837 billion the week before.

Scheduled U.S. data today include jobless insurance claims, the Kansas City Fed manufacturing index, and pending home sales.

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

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