Europe Blamed for World’s Woes

June 13, 2012

Share prices have fallen 0.9% in Germany and France.  The DJIA opened on a modestly negative note.  Stocks rose 0.6% in Japan, 1.6% in China, 0.8% in Hong Kong, and 0.7% in the Philippines but fell by 1.3% in New Zealand, 0.4% in Thailand, and 0.2% in Australia.

Industrial production in the euro area sank another 0.8% on month in April, the fifth drop in six months, and was 2.3% lower than a year earlier.  The results were a bit worse than anticipated and left April’s output level 0.7% below the 1Q average.  Production in April dropped 6.5% in Portugal, 1.9% in Italy and 2.0% in Germany.

The Bank of Thailand’s Monetary Policy Committee left the one-day repo rate unchanged at 3.0% but released a statement calling growth prospects in Europe worse than before and promising vigilance against global economic developments.

Bank of Japan Governor Shirakawa also cast Europe in the scapegoat role, calling the debt crisis of Euroland Japan’s greatest risk factor.  Finance Minister Azumi reiterated a readiness to counter excessive yen strength.

The Fitch credit rating agency downgraded more than ten Spanish banks and warned of contagion effects if Greece exits the common currency area.  The Greek election on June 17 is very much on the minds of investors.

Italy’s one-year bill auction produced a significantly higher 3.97% yield than last month’s tender.

Sedlabanki, Iceland’s central bank, raised the 7-day collateralized rate to 5.75% from 5.50%.  Like a 50-basis point hike in mid-May, the move was not predicted.  Rate increases since August 2011 total 150 basis points.  Euroland’s debt uncertainties have exposed the Icelandic krona’s vulnerability.

And Switzerland’s deflationary risks, too.  The Swiss PPI/import price index fell 0.2% on month and by 2.3% between May 2011 and May 2012.  Import prices were 4.5% weaker than a year before, while domestic Swiss producer prices posted a 12-month decline of 1.2%.

The dollar has risen 0.3% against sterling and 0.2% versus the loonie but shows overnight declines of 0.2% relative to the yen and kiwi and 0.1% against the euro, Swiss franc, and Australian dollar.  The yuan is unchanged against the U.S. currency.

Oil prices fell by 1.2% to $82.29 per barrel.  Gold prices are 0.4% firmer at $1620.50 per troy ounce.

Ten-year German bund, British gilt, and Japanese JGB yields are four, two and one basis points higher.  The 10-year Treasury yield softened one bp at the open, however.

U.S. data releases today accentuated softness.

  • Retail sales fell by 0.2% for a second consecutive month but managed to post a 5.3% 12-month advance.
  • Producer prices slumped 1.0% on month.  Their 12-month increase of only 0.7% has slowed from 1.9% in April, 2.8% in March and 7.0% last September.
  • Business inventories climbed 0.4% in April, leaving the inventories-to-sales ratio unchanged at 1.26%.
  • The 30-year fixed rate mortgage rate remained below 4.0% last week at 3.88%.

Core domestic Japanese machinery orders rebounded 5.7% in April from a 2.8% decline in March and were 6.6% greater than in April 2011.  Government orders for machinery dropped 5.0%, however, and foreign orders edged up just 0.3%. 

Australian consumer confidence rose 0.3% in June but haven’t yet recovered to the March level despite monetary relief from the Reserve Bank of Australia.

Consumer confidence in India printed at a sub-50 41.7 in May after a reading of 41.4 in April.

South African retail sales increased 1.5% in April but were just 1.0% higher than a year earlier.

German consumer price inflation slowed to 1.9% in May as the index dipped 0.2% on month.  CPI inflation crested last September at 2.6% and posted an average rise in 2011 of 2.3%.  Non-energy CPI inflation was just 1.5% in the latest month.

Italian consumer prices were unchanged on month in May and 3.2% higher than a year earlier.  Greek import prices fell 0.5% in April and to a 5.2% 12-month increase from 6.6% in March.  Spanish consumer prices dropped 0.1% on month in May and to 1.9% on year from 2.1% in the year to April.  Core inflation was just 1.1%. French consumer prices also dipped 0.1% on month and slowed a tenth percentage point to 2.0% in on-year terms.  The French current account deficit narrowed slightly to EUR 4.2 billion in April.  Finnish retail sales in April rose 1.4% in nominal terms and fell 2.2% in volume terms. 

Sri Lanka’s central bank, like Thailand’s, held a scheduled policy meeting and decided as expected to leave its key interest rates unchanged.  The repo rate and reverse repo rate levels have been 7.75% and 9.75%, respectively.

The Reserve Bank of New Zealand will announce its rate decision in a little over six hours from now.  Analysts are not expecting the 2.5% Official Cash Rate to get changed.

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

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