Anticipating Coordinated Monetary Easing as Reported Data Were Mostly Soft

July 30, 2012

Share price gains overnight continue to reflect optimism that the ECB will take forceful action Thursday to preserve the euro.  Stocks are up 1.9% in Spain, 1.0% in Germany, 0.8% in France and 0.6% in Britain.  In the Pacific Rim, equities climbed 1.8% in India, 1.6% in Hong Kong, 1.1% in Singapore and the Philippines, 0.8% in Japan and South Korea, and 0.9% in Australia.  China’s bourse slipped 0.6%, however.

The dollar rebounded 0.5% against the euro and Swiss franc and 0.3% versus sterling.  The dollar is unchanged against the yuan and loonie, off 0.1% relative to the Australian dollar, and up 0.1% against the kiwi.

The yield on 10-year Japanese JGBs increased three basis points.  That on German bunds dipped a basis point, while that on British gilts is a basis point higher.

Gold prices are steady at $1623.30 per ounce.  Oil prices firmed 0.2% to $90.28 per barrel.

Japanese officials downgraded their assessment of industrial production to “appears to be flat” from “continues to show improvement.”  The last time the assessment was this low was in the final third of 2011.  The downgrade came in response to an unexpected 0.1% downtick in output in June.  Production had plunged 3.4% in May and fell by 2.2% in the second quarter after a 1.3% increase in 1Q.  Motor vehicle production by Japan recorded a smaller 20.3% on-year advance in July after jumping 59.5% on such a basis in June.

South Korea reported to lowest level of sentiment in manufacturing since the first half of 2009.

Euroland sentiment gauges for July were disappointing.  So were the results of the retail purchasing managers surveys.

  • The euro area economic sentiment index printed two points lower at 87.9 in the first month of 3Q.  Such had worsened in the second quarter from a reading of 94.5 in March to 89.9 in June.  Deterioration was widespread.  Between June and July, industrial confidence decreased by 2.2 points, service sector confidence worsened 1.1 points, consumer confidence dropped 1.7 points further, retail confidence slid 0.6 points, and construction dipped 0.3 points.
  • The business climate index declined by 0.32 points to a reading of minus 1.27, weakest since October 2009.
  • Euroland’s retail PMI fell from a reading of 48.3 in June to a 2-month low of 46.4 in July.  The German retail PMI declined 2.1 points to a 3-month low of 50.3.  France and Italy posted 2-month lows of 46.7 and 40.7 in their retail purchasing manager PMI indices.

Spanish real GDP contracted 0.4% last quarter and by 1.0% between 2Q11 and 2Q12.  GDP has fallen three straight quarters and was unchanged in 3Q11.  The IMF downgraded its Spanish GDP growth forecasts to negative 1.7% this year and minus 1.2% in 2013.

Swedish GDP surprised on the upside with a quarterly increase of 1.4% in 2Q and on-year growth of 2.3%, the most since the year to 3Q11.  Improvement was widely shared among Sweden’s sources of demand.

Dutch producer price inflation slowed sharply to 1.3% in June from 2.2% in May.  Belgian CPI inflation stayed at 2.3% as expected in July.  Spanish CPI inflation ticked up to 2.2% from 1.9% in June.  Austrian PPI inflation was halved to a minuscule 0.3% in June, and PPI inflation in Bulgaria slowed as well to 3.3% from 4.3% in May.  Portuguese retail sales were 5.2% lower than a year earlier in June, and industrial production in that peripheral EMU member declined by 4.4% between July 2011 and July 2012.  Austria’s manufacturing PMI swung decisively below the 50 no change line to 47.4 in July after readings of 51.5 in March, 51.2 in April, 50.2 in May and 50.1 in June.

In Britain,

  • The CBI monthly survey of distributive trades showed a pronounced drop to a 3-month low of 11% in July from 42% in June and 21% in May,
  • The Hometrack house price index dipped 0.1% in July to retain a 12-month 0.5% rate of decline,
  • And the Bank of England reported 12.6% monthly decline in mortgage approvals to 44.2K, softer consumer credit growth of GBP 0.6 billion, and a bigger on-year 5.2% decrease in M4 money.

Building permits in New Zealand increased 5.7% in June, recovering after a 7.1% drop in May.  Australian new home sales advanced 2.8% in June on top of May’s increase of 0.7%.  In South Africa, on-year M3 money growth of 7.0% in June was greater than the 6.4% pace in the year to May, and private credit expansion also accelerated to reach 8.7% from 8.3% in May.

In a busy week of data releases and central bank meetings (at the Fed, ECB, and Bank of England), today’s only scheduled release is the Dallas Fed manufacturing index.  Investors anticipate a shock and awe display of easing from the ECB and are also expecting the Federal Reserve to take action to support economic growth.

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

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