Share Prices Ending Week on Softer Note

July 20, 2012

The calendar for data releases today is particularly thin for a Friday.  Not much else is going on.  Thursday’s U.S. data showing higher-than-expected weekly jobless claims of 386K, a 0.3% decline in the index of leading economic indicators, a third straight negative reading on the Philly Fed manufacturing index, and a 5.4% drop in existing home sales to a lower-than-expected 4.37 million are ominous signs for the Obama campaign.  A released opinion poll put Romney slightly ahead in the race and indicated that worsening perceptions of the U.S. economy seem to be hurting Obama’s reelection prospects.  Because of the under-performing economy, it’s been my baseline assumption for several months now that Romney will win. 

Equities dropped 1.4% in Japan, 1.1% in China, 0.9% in Vietnam, 0.7% in India, 0.6% in New Zealand, 0.4% in Indonesia and Singapore, and 0.2% in Australia.  Spain’s IBEX shows a slump so far today of 1.3%, and share prices have fallen 0.7% in Paris, 0.4% in London, and 0.2% in Frankfurt.

Oil prices fell 1.3% but remain above the $90 per barrel threshold at $91.48.  Gold prices are steady at $1579.70 per ounce.

Sovereign debt yields are lower.  Those on ten-year German bunds, British gilts and Japanese JGBs have slid by four, two and a single basis point.  European finance ministers will hold a teleconference today to discuss the condition of Spanish banks.  The government in Madrid needs yet another EUR 12 billion to aid troubled regions.  The Fitch rating service kept Italy at A- with a negative outlook. 

German producer prices fell by a further 0.4% in June, cutting the 12-month rate of increase to a 25-month low of 1.6% from 2.1% in May and 4.0% at end-2011.  Energy prices slumped 1.4% on month, and all other producer prices collectively dipped 0.1% on month.  Central banks that target core inflation like the Fed have been increasingly criticized, but the behavior of energy prices over the past year as epitomized by the German PPI underscores the thinking behind a policy guided by core rather than total inflation.  It’s not that food and energy don’t matter.  It’s that if commodities are trending differently from the overall thrust of economic activity and core inflation, those strains are likely to be shortlived.  Since monetary policy impacts with a lag, a central bank that reacts to a spike in oil prices in the face of soft aggregate demand is apt to oversteer the economy downward.

France’s index of leading economic indicators dropped by 0.2% in May as such did as well in April.  The index of coincident indicators edged 0.1% higher.

Britain’s public sector net borrowings of GBP 12.08 billion in June were 25% less than in June 2011.  U.K. outstanding public debt equaled 66.1% of GDP, up from 64.8% in May and 62.3% in June 2011.

Dutch consumer spending was 1.9% lower in June than a year before, marking the 14th on-year drop in a row.  Danish retail sales slid 0.3% in June, and the Greek current account deficit in May of EUR 1.19 billion was 31% bigger than the April deficit.  Icelandic labor costs stagnated on month in June, cutting their on-year advance to 6.9% from 11.0% in the year to May.  Labor costs in 1H12 were 7.3% greater than in 1H11.

Australian export prices last quarter posted a sequential 1.0% rise from 1Q but were 3.8% lower than in 2Q11.  Import prices recorded increases in both quarterly terms (2.4%) and from the 2Q11 level (3.7%).  In the prior statement year to 2Q11, export prices had shot up 10.5%, while import prices dipped 1.0%.  Australia’s terms of trade, that is the ratio of export prices to import prices, has past its peak but remains historically elevated.

Taiwanese export orders were 2.6% lower than a year earlier in June.

Canadian consumer prices will be released at 12:30 GMT, and the Bank of Mexico is holding an interest rate policy meeting today.  But there are no U.S. economic statistical releases planned.

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

Tags: ,


Comments are closed.