Fresh Decline in European Share Prices after Better Tone in Asia

May 17, 2012

Asian markets were supported by the FOMC minutes and Japanese first-quarter GDP.  Equities around the Pacific Rim rose 3.1% in The Philippines, 1.7% in Taiwan, 1.5% in China, and 0.9% in Japan.

  • FOMC minutes released Wednesday indicated a preference not to stimulate further yet but a willingness to do so if outlook deteriorates appreciably.
  • Japanese growth of 4.1% at an annualized rate was stronger than anticipated, and the price deflator recorded a smaller on-year decline.

In Europe, however, where fear of contagion persists, the British Ftse has lost another 0.8% and share prices in Paris and Frankfurt are off 0.6% so far.  A new Greek parliamentary election has been called for June 17, until which the country will be governed by a caretaker coalition.  Parts of Germany and Switzerland are observing Ascension Day.

The new French cabinet includes Ayrault as prime minister, Moscovici as finance minister, and Fabius as foreign minister.  Revised Spanish GDP figures showed a second straight quarterly contraction of 0.3% in 1Q12.  Consumption fell, and export growth was more than halved in the latest quarter.  Three-month euribor rates, which had been pinned in the wake of big LTROs in December and February, are firmer.

Overnight net movements in the dollar have been minimal.  The greenback has risen 0.2% against sterling and 0.1% versus the loonie, Swissie and Australian dollar.  It is unchanged against the euro, yen and yuan and off 0.1% against the kiwi.

The 10-year German bund and British gilt yields have declined by two and three basis points.  The 10-year JGB is two basis points firmer.

Gold rebounded 0.7% to $1547.20 per ounce.  Oil is 0.2% firmer at $93.00 per barrel.

Japanese stock and bond transactions generated a JPY 1.615 trillion net capital outflow in the week of May 12, almost six times larger than the prior week’s outflow.  Japanese purchased JPY 1.26 trillion of foreign bonds.  Japanese mortgage loans were 2.4% greater in the first quarter of 2012 than a year earlier.

Japanese industrial production growth in March was revised upward to 1.3% from 1.0% reported a few weeks ago and exceeded the March 2011 level by 14.2%.  The Sendai earthquake occurred in March 2011.  Production rose 1.3% on quarter in 1Q12 (and 4.8% on year) but fell 1.0% in fiscal 2011-12.  Capacity utilization increased 1.3% in March, while productive capacity fell by 0.5%.

Japan’s GDP growth of 4.1% annualized last quarter follows growth of just 0.1% in 4Q11.  The rise in personal consumption accelerated to 4.4% from 2.8% in the final quarter of 2011, and exports jumped 12.3% annualized after shrinking 14.1% in 4Q11.  A 14.8% shrinkage of non-residential investment exerted a 2.1 percentage point drag on GDP growth last quarter, but inventory building and net exports buoyed GDP growth by 2.2 percentage points.  Real GDP was 2.7% greater than a year earlier, and nominal GDP gained 1.4% on year.  The year-on-year decline in the GDP price deflator lessened to 1.2% from 1.9% in the second half of 2011.  Public-sector spending rose 3.3% between 1Q11 and 1Q12 and accounted for 1.5 percentage points of growth between 4Q11 and 1Q12.

Producer price inflation decelerated in New Zealand last quarter.  The producer output price index dipped 0.1% on quarter, halving the on-year pace to 1.6%.  Producer input prices went up 0.3% from 4Q11, the smallest quarterly gain since 3Q09, and by 2.3% in on-year terms, down from four-quarter gains of 4.2% in 4Q11 and 5.3% in the year to 1Q11.  Job advertising in New Zealand sank 2.0% in April, marking a third consecutive drop.

Expected Australian CPI inflation over the coming year eased to 3.1% in May from 3.3% in the April survey.  Average weekly earnings in November-February rose 1.2% from the prior three-month period and 4.6% on year.

Singapore reported a 10.0% jump in GDP last quarter after a 2.5% contraction in the final quarter of 2011.  GDP was 1.6% higher than in 1Q11 when activity had sizzled.  The Singaporean trade surplus of SGD 5.35 billion in April was 2.2 times larger than in March. South Korean unemployment of 3.4% in April was roughly as expected, and Hong Kong’s jobless rate dipped 0.1 of a percentage point to 3.3% last month.  Wholesale turnover in South Africa fell 5.0% between March 2011 and March 2012. 

J.P. Morgan’s likely eventual losses on its bad hedging bet is rumored to be 50% or more higher than the $2 billion amount mooted initially.

Scheduled North American data releases today include the U.S. index of leading economic indicators, the Philly Fed manufacturing index, and weekly jobless claims; Canadian wholesale sales and security transactions with non-residents; and Mexican GDP.  St. Louis Fed President Bullard speaks publicly.  In South America, Brazil releases retail sales, and the Central Bank of Chile announces its latest interest rate policy decision which is not expected to include a rate change.

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

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