Continuing Investor Worries over European Political Shifts

May 8, 2012

Movement overnight in the dollar and yen reflect European-Inspired risk aversion.  Japan’s currency is 0.2% stronger against the dollar, which otherwise has climbed 0.5% against the Australian and New Zealand dollars, 0.4% versus the loonie, 0.2% relative to the euro and sterling and 0.1% against the Swiss franc.  The yuan is unchanged and slightly above 6.30 per dollar.

Stock prices slumped 1.9% in Paris and 1.1% in Frankfurt.  The British Ftse is down 0.3%.  The Nikkei recovered 0.7%, but share prices fell by 2.2% in India and 0.3% in China and Hong Kong.  Stocks rose 0.5% in South Korea and Indonesia and 0.3% in New Zealand, Singapore and Australia.

Oil prices fell another 1.1% and, at $96.87, have fallen almost 9% since the first of May.  Gold slipped 0.7% to $1627.20 per ounce.

Ten-year British gilt yields declined 7 basis points and below 2.0% for the first time in nearly four months.  The yield on 10-year bunds is four basis points lower and around historical lows. 

German industrial production data, like yesterday’s news about orders, were better than expected.  Output rose 2.8% in March and was 1.8% higher that month than the 1Q average level.  Production also reverted to a positive 12-month change (+1.6%).  Strong monthly gains of 30.7% in construction and 1.5% in manufacturing outweighed a 1.8% drop in energy.

Several other countries released March industrial output.  Turkish industrial production rose 0.7% in March and by 2.5% from a year earlier. Danish industrial production fell 2.0% in March and by 3.5% in on-year terms.  Norwegian industrial output fell 0.7% in March but rose 2.4% from March 2011.  Hungarian output climbed 0.6% on month and fell 1.6% on year. 

According to the British Retail Consortium, shop prices were 1.3% greater in April than a year earlier.  The Royal Institute of Chartered Surveyors’ house price balance index recorded a negative 19% reading in April, which was a 6-month low.

Finland’s trade deficit in March of EUR 140 million was 80% narrower than a year earlier.  Denmark’s trade surplus dropped 22% on month to DKK 5.3 billion in March. 

Filipino producer prices dipped 0.2% in March but ticked up a tenth to a 3.2% 12-month increase.  South Korean producer price inflation slid from 2.8% in March to a 26-month low of 2.4% in April.

Australia recorded its largest monthly trade deficit in two years in March, a gap of AUD 1.587 billion.  Such was more than twice as big as February’s deficit and brought the first-quarter deficit to A$ 3.18 billion.

Dallas Fed President Fisher said allowing higher inflation would crimp business investment.  Federal Reserve of Richmond President Lacker also made some hawkish remarks that easy monetary policy cannot alleviate structural unemployment.  Fed officials have broadcast a spectrum of views in public.  The important thing is the Chairman Bernanke has leaned consistently toward a dovish pro-growth stance.

U.S. data arriving today include the Labor Department’s JOLTS index, the IBD/TIPP optimism index, and the NFIB gauge of small business confidence.  Republican primaries will be held in Indiana, North Carolina and West Virginia. Rick Santorum endorsed Mitt Romney in a late-night email to his supporters.  Canada reports housing starts, and ECB President Draghi speaks publicly today, revealing for the first time his reaction to the anti-austerity message of voters in France and Greece over the weekend.

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

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