Pacific Rim Share Prices Clobbered on Escalating Greek Crisis

May 16, 2012

Equities fell 3.2% in Hong Kong, 3.1% in South Korea, 2.4% in Australia, 2.2% in Taiwan, 1.8% in India, 1.6% in Singapore, Indonesia and China, and 1.1% in Japan.   The British Ftse and German Dax have lost 0.7% and 0.6%, but the Paris Cac is 0.7% firmer.

Sterling reacted poorly to the Bank of England quarterly Inflation Report, which cut projected growth but raised the inflation forecast such that above-target CPI is expected to persist to around mid-2013.  The pound has lost 0.5% against the dollar, which has also risen 0.4% against the New Zealand dollar, 0.3% versus the loonie, 0.2% against the yen, and 0.1% vis-a-vis the euro, Swiss franc, Aussie dollar, and yuan.  The 10-year British gilt yield dropped four basis points.

Efforts collapsed in Greece to fashion a workable coalition government.  New elections on either June 10 or 17 are likely to become a referendum on staying in the monetary union or settling for a default and departure from the common currency.  Many analysts continue to warn that if Greece drops out, forces of contagion will spread to Spain, Portugal, Ireland and Italy like wildfire.  French President Hollande is in Berlin in talks with German Chancellor Merkel to find a way to promote Greek growth as well as Greek deficit reduction.

The 10-year Japanese JGB yield is two basis points lower at 0.83%, while the comparable German bund ticked up a basis point to 1.48%.

Oil and gold prices slumped another 1.7% and 1.4% to $92.40 per barrel and %1535.90 per ounce.  One has to go back to the start of November to find a lower closing oil price level.  Meanwhile, gold has lost its luster as a safe haven.  Only dollars will do in the short run.

Iceland’s Sedlabanki raised the 7-day collateralized lending rate by 50 basis points to 5.5%.  This second tightening was mostly unexpected.

Consumer prices in the euro area rose 0.5% last month, so on-year inflation dipped only 0.1 percentage point to 2.6%.  Unchanged core inflation of 1.6% was 0.1 percentage point higher than forecast and the same as in the previous statement year to April 2011.  Clothing and energy posted monthly gains of 2.3% and 1.1%.

Euroland’s seasonally adjusted trade balance posted an as-forecast surplus of EUR 4.3 billion in March.  Exports and imports fell by 0.9% and 1.1% from February. The first-quarter unadjusted surplus of EUR 2.6 billion compares to a deficit of EUR 18.0 billion in 1Q11.  Exports were 8.5% higher than in the first quarter of 2011, while imports recorded on-year growth of 3.4%.

Japan reported two disappointing indicators.

  • The tertiary index of service-sector activity fell 0.6% in March.  Drops of 0.6% in March and January flanked no change in February, leaving the March reading unchanged from the average 1Q level and the 1Q reading unchanged from the final quarter of 2011.
  • Core private machinery orders fell 2.8% in March, erasing February’s increase and producing a first-quarter advance of just 0.9%, which is less than half what officials predicted three months ago.  The forecast for 2Q12 calls for a rise in core private machinery orders of 2.5% but a 9.7% plunge in foreign machinery orders.

Turkish consumer confidence unexpectedly declined 2.8 points to a reading of 91.1 in April, breaking a streak of five increases in a row.  South Korea’s jobless rate of 3.4% last month met expectations. 

Australian consumer confidence this month, according to the Westpac index, only recovered half of the drop seen in April despite a greater-than-anticipated 50-basis point monetary policy easing at the start of May.  Australia’s labor cost index rose 0.9% on quarter in 1Q12 and posted the same 3.6% on-year pace as seen in the final quarter of 2011.

The latest batch of British labor statistics were mixed.  The claimant count of unemployment unexpectedly fell by 13.7K in April, and the change in March got revised to a drop of 5.4K from a rise of 3.6K reported originally.  A 4.9% claimant-basis unemployment rate was less than forecast, and the ILO unemployment rate in the first quarter of 8.2% was down from 8.4% in the final quarter of 2011.  However, wage pressures remain very subdued.  Regular pay in 1Q12 was 1.6% higher than in 1Q11, and pay with bonuses posted an on-year increase of only 0.6%.

The Swiss ZEW expectations index, a measure of investor confidence in the economy, deteriorated 6.1 points between February and March to a reading of negative 4.0.  Swiss harmonized consumer prices were unchanged on month and down 1.1% on year in April.

The Czech current account surplus narrowed 25.6% on month to CZK 13.6 billion in March.  Ireland’s trade surplus narrowed by 16.6% over the same span.  Portugal’s jobless rate jumped 0.9 percentage points to 14.9% in 1Q12. 

Several U.S. statistics arrive this morning:  industrial production, building permits, housing starts, and oil inventories.  Canada releases results of its monthly manufacturing survey.  The FOMC minutes arrive later today.

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

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