European Voters Say No Mas to Austerity

May 7, 2012

Socialist Francois Hollande was elected President France, defeating Nick Sarkozy, who became Euroland’s 11th incumbent leader to be kicked out of office since the start of the sovereign debt crisis in 2009.  Hollande favors stronger fiscal stimulus and campaigned on a promise to renegotiate the EU treaty on fiscal discipline.  Voters split 51.9% for Hollande and 48.1% for Sarkozy.

Anti-austerity, anti-bailout, and anti-EMU parties were the big winners of National Greek elections yesterday.  Former Prime Minister Papandreou’s Socialist Pasok party’s support plunged to 13.2% from 43.7% in the 2009 vote.  New Democracy and Styriza are front-runners to form a government, but a possibility also looms of a hung parliament and need for new elections to break the logjam.

In state elections in Schleswig-Holstein, the ruling national CDU/FDP coalition that has also held power in that region succumbed to the SPD and Greens.  Chancellor Merkel suffered a personal rebuke, as her CDU received its smallest voter share in that state since 1950.

Local elections were also held yesterday in Italy, which like Spain looms as the next battleground of Euroland’s sovereign debt crisis.

Share prices tumbled 2.8% in Japan, 2.2% in Singapore, 2.6% in Hong Kong, 2.2% in Australia, 1.4% in Indonesia, and 1.3% in The Philippines as news first broke about the European election results.  However, the German Dax and Paris Cac only show losses of 0.7% and 0.3%. 

British markets are closed for the early May bank holiday.

Net changes in the dollar since the close before the weekend are surprisingly muted.  The greenback is in fact unchanged against the yen, loonie, kiwi, yuan, and sterling.  It has risen 0.4% against the Swiss franc and 0.3% versus the euro.

Oil prices continued to ease, sliding 0.7% to $97.76 per barrel.  Gold edged down 0.2% to $1641.60 per ounce.

Greek 10-year sovereign debt yields shot up more than 150 basis points.  German bunds are steady at record lows of 1.58%.  The Japanese 10-year JGB yield slid three basis points to 0.86%.  In futures trading, a likely lower open is indicated in U.S. Treasury yields.

German industrial orders posted an unexpectedly strong 2.2% monthly advance in March and were 1.6% higher than the average first-quarter level.  Orders still fell 0.7% in 1Q as a whole and were 1.2% below their level in March 2011.  Foreign demand for capital goods jumped 7.7% in the latest month, while domestic capital goods orders, a leading indicator of business investment, were down 1.3% from February. 

Euroland’s Sentix gauge of investor confidence plunged in May by almost ten points to a 32-month low of minus 24.5.  The index had been minus 8.2 as recently as March.

Germany’s construction purchasing managers index weakened 5.9 points to a reading of 49.8 in April.

Swiss consumer prices ticked 0.1% higher in April but posted a second straight on-year decline of 1.0%.  The Swiss National Bank’s policy of stopping franc appreciation against the euro was imposed last September to combat deflation.  Swiss unemployment slid to 3.1% last month from 3.2% in March.

Czech retail sales rose 0.4% in March and were 1.5% higher than a year before.  The Czech trade surplus widened 33% on month to CZK 37.5 billion in March.

Several Australian indicators were released.  The construction purchasing managers index printed at a 6-month low of 34.9 in April, down from 36.2 in March.  Retail sales provided a big pleasant surprise, climbing 0.9% in March and posted a 1.8% on-year increase.  Business conditions fell by three points to a zero reading in April, but business confidence ticked a point higher to a 3-month peak of 4.  Building permits increased 7.4% in March following an upwardly revised 8.8% drop in February (first reported as a 7.8% decline).  Job ads fell 3.0% in April and were 1.7% lower than a year earlier.

Minutes from the Bank of Japan’s Board meeting of April 9-10 expressed guarded optimism, observing some signs of a pick up but characterizing overall economic conditions as more or less flat and future prospects as still highly uncertain.  At the subsequent meeting on April 27, the Board expanded quantitative easing by less than many analysts were anticipating.

Indonesian GDP climbed 1.4% last quarter but eased in on-year terms to a growth rate of 6.3% from 6.5% in the year to 4Q11.  Taiwanese CPI inflation was only 1.4% in April.

Canadian building permits and U.S. consumer credit figures arrive today.  Richmond Federal Reserve President Lacker speaks today.

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

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