J.P. Morgan Disclosure and Chinese Monthly Data Rattle Equities

May 11, 2012

The last thing fragile world financial markets needed was another credit derivative trading bomb shell.  After U.S. markets closed Thursday, J.P. Morgan disclosed a loss of at least $2 billion incurred in trading credit derivatives, and share prices fell today by 1.4% in South Korea, 1.2% in Vietnam, 1.1% in Taiwan, 1.3% in Hong Kong, 0.7% in The Philippines, 0.6% in Japan, and 0.8% in both India and China.  Losses so far in Europe are 0.9% in the Paris Cac, 0.5% in the British Ftse, and 0.4% in the German Dax.  Led by bank shares, U.S. futures signal a likely drop at the open.

Greek politicians have been unable to put a coalition government together.

The EU released its spring forecasts, which project euro area growth of negative 0.3% this year followed by +1.0% in 2013.  Real GDP in 2012 is projected to drop by 4.7% in Greece, 3.3% in Portugal, 1.8% in Spain, 1.4% in Italy, and 0.9% in The Netherlands.  A 0.7% rise is predicted for German GDP, and forecast growth of 0.5% is seen happening in France and Ireland.  Belgian GDP stagnates this year.

The dollar rose overnight by 0.6% against the Australian dollar, 0.4% versus the loonie, kiwi, and sterling, and 0.1% against the euro and Swiss franc.  The greenback has edged 0.1% lower against the yen and yuan.

Ten-year British gilt, German bund, and Japanese JGB yields are four, three, and two basis points lower today.

Oil and gold prices have declined by 1.0% and 0.9% to $96.11 per barrel and $1581.30 per troy ounce.

Central banks in Peru and Malaysia left their key interest rates steady as expected at 4.25% and 3.0%.

Chinese economic figures for April underscored the economy’s policy-induced softer trend.

  • On-year growth in industrial production slowed from 11.9% in March to a near 3-year low of 9.3%.  Such had risen 13.4% in the year to April 2011 and was expected to expand about 12.5% over the latest twelve months.
  • Retail sales growth slowed to a 12-month increase of 14.1% from 15.2% in March and 18.1% in December and January.
  • The year-to-April rise in fixed asset investment was 20.7%, weakest in over 9 years.  Fixed asset investment climbed 23.8% in 2011.
  • CPI inflation slowed to 3.4% from 3.6% in March, 4.1% in December, and 6.1% last September.
  • Producer prices, which had risen 7.5% in the year to July 2011, fell by 0.7% over the latest 12-month period.
  • M2 money grew 12.8% in the year to April, about a half percentage point less than expected and down from 13.4% in the year to March and 15.3% in the year to April 2011.  The People’s Bank of China has an M2 expansion target of 14%.
  • Bank loans rose by 682 billion yuan last month, down from a 1.011 trillion yuan increase in March and a 740 billion yuan advance in April 2011.

There were also signs of weakness from Japan, India, Hong Kong and Britain.

  • Japanese M2 money expanded 2.6% in the year to March, slowest in a year and down from 3.0% growth between 1Q11 and 1Q12.
  • Industrial production in India unexpectedly fell by 3.5% in the year to March following a 4.1% rise between February 2011 and February 2012.
  • GDP in Hong Kong slowed to an on-year pace of 0.4% in the first quarter of 2012 from 3.0% in 4Q11 but is expected to perform better in coming quarters.
  • The Nationwide index of British consumer confidence dropped nine points to a reading of 44 in April, reversing all the improvement seen in March.

Final German CPI data for April revised the 12-month inflation rate up to 2.1% from 2.0% reported on a preliminary basis.  CPI inflation had also stood at 2.1% in March, January, and December but crested last September at 2.6%.  Energy consumer prices were 5.8% higher than in April 2011, while all other consumer prices collectively posted a gain a 1.5%.  Food, however, was 3.0% higher than a year earlier.

British PPI inflation in April had mixed results.  Producer output prices surpassed expectations, climbing up 0.7% on month and 3.3% on year with a core PPI-O advance of 2.3% from April 2011.  Producer input prices fell 1.5% on month and went up just 1.2% on year, which were smaller changes than forecast.

Spanish CPI inflation ticked up to 2.1% in April from 1.9% in March.  CPI inflation also accelerated in Hungary to 5.7% from 5.5%, but such slowed in Romania to 1.8% from 2.4%.  Romanian industrial production increased 0.7% in March but was just 0.5% higher than a year before.  Portuguese consumer price inflation slowed to 2.9% from 3.1% in March.

Food prices in New Zealand slid 0.1% on month and were unchanged on year in April.

Turkey’s current account deficit of $6.1 billion in March was 36% narrower than the deficit in March 2011.

At 12:30 GMT, U.S. producer price data and Canadian labor force figures will be released.  Later on, investors will learn the early May reading of the U. Michigan consumer sentiment index. 

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

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