Stronger Yen and Sharply Lower Share Prices

May 23, 2012

Equities have plunged 2.0% in Japan, 1.8% in Taiwan, 1.5% in Singapore, 1.3% in Australia and Hong Kong, 1.1% in South Korea, 1.0% in Indonesia, 0.6% in India and New Zealand and 0.4% in China.  In Europe, mounting fear surrounding Greece’s options saw stocks drop by 2.2% in France and Spain, 3.0% in Italy, 2.0% in Britain, and 1.9% in Germany.

The yen advanced 0.8% against the dollar, which otherwise has climbed 0.7% relative to the New Zealand and Australian dollars, 0.4% against the euro and Swiss franc, 0.2% versus the yuan and sterling, and 0.1% versus the loonie.  India’s central bank was rumored to be supporting its currency with intervention today.

EU leaders are meeting in Brussels to discuss the euro debt crisis.  Investors see a Greek exit as increasingly possible.  Two editorials in Tuesday’s FT capture the bleak situation.  One by the former governor of Argentina’s central bank argues that the common currency area in Europe is a political project and that the political beneficiaries like Germany should pay to preserve it.  The other by columnist Gideon Rachman concludes that the costs of preventing Grexit likely exceed the costs of Greece leaving and that it’s best to allow it to happen sooner rather than later.

Gold and oil prices slumped overnight by 1.4% and 1.1% to $1554.70 per ounce and $90.86 per barrel.

Ten-year sovereign debt yields fell nine basis points in Britain and five basis points in Germany. 

The Bank of Japan’s monthly Board meeting failed to change monetary policy or its economic assessment.  A statement made no specific mention of the asset buying program.  The overnight rate target remains zero to 0.1%.  Ten-year JGB’s ticked up a basis point to 0.87%.  Fitch cut Japan’s credit rating to A+ from AA, citing a continuing lack of fiscal discipline, and retained a “negative” outlook.

Minutes from the Bank of England’s May 9-10 policy meeting revealed that David Miles again dissented in favor of boosting the asset purchase program’s size to GBP 350 billion from its current GBP 325 billion level.  Although the short-term inflation prognosis was revised materially upward, the minutes stress that the outlook for prices faces huge uncertainty.  Several Monetary Policy Committee members found the decision to hold or ease “finely balanced,” and the minutes states that “further stimulus could be added if the outlook warranted.”

Forecasts released in the OECD Economic Outlook yesterday project that GDP will rise 1.6% this year in the whole group of advanced economies and by 2.2% next year.  Euroland growth was put at negative 0.1% in 2012 followed by 0.9% in 2013.  Japanese growth is seen slowing to 1.5% in 2013 after 2.0% this year.  U.S. growth averages 2.5% per annum in the two years.  U.S. and Euroland consumer price inflation forecasts for 2013 are similar at 1.8% and 1.9%, while Japanese CPI inflation is projected at negative 0.2% for both years.

British retail sales were considerably weaker in April than anticipated, partly reflecting the month’s heavy rains.  Sales plunged 2.3% on month and 1.1% on year.  Gasoline sales dived 13.2%, and non-fuel sales were 1.0% weaker on month.

The Confederation of British Industries’ monthly survey of industrial trends produced much sharper deterioration than anticipated.  The reading of minus 17% in May followed minus 8% in April and was the worst score since December.

Italian consumer sentiment sank to an all-time low of 86.5 in May after readings of 88.8 in April and 96.3 in March.

Japan reported customs trade figures for April.  The seasonally adjusted deficit narrowed to JPY 480 billion from JPY 617 billion in March, as import declined 1.7%.  The unadjusted trade deficit was JPY 520 billion, similar to a deficit of JPY 478 billion a year earlier. 

The World Bank trimmed its projection of Chinese GDP growth this year to 8.2% from a prior estimate of 8.4%.

CPI inflation in Singapore accelerated to 5.4% in April from 5.2% in March.  Malaysian CPI inflation slowed to 1.9% from 2.1% in March, and South African CPI inflation ticked up a tenth percentage point to 6.1% last month.

Two measures of Australia’s leading economic indicators were released.  According to the Conference Board, such rose 0.2% in March, while the Westpac index went up 0.4% on month.  Both measures performed better than they had in February.

Euroland’s current account swung from a seasonally adjusted EUR 1.2 billion deficit in February to a EUR 9.1 billion surplus in March.  The unadjusted EUR 9.8 billion surplus in the year to March 2012 was EUR 23.9 billion higher than accrued over the previous twelve months.

A 0.3% rise in Germany’s index of leading economic indicators for March matched February’s increase.  The coincident index went up 0.5%.

Scheduled U.S. data today include new home sales, the FHFA house price index, and weekly oil inventories.  Minneapolis Fed President Kocherlakota speaks publicly.  President Obama delivers a commencement address at the Air Force Academy in Colorado Springs.  Canada releases retail sales and the index of leading economic indicators.

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

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