New Worries about Spanish Fiscal Policy

August 15, 2012

An extension of unemployment benefits in Spain raises new doubts that ECB conditions for stepped-up bond purchases will be met.

Minutes from the Bank of England’s policy meeting earlier this month revealed a 9-0 vote to keep existing interest rate and asset purchase settings.  An increase of the asset purchase ceiling was considered by rejected in favor of the wait and see stance.

Not much data were released in Asia and Europe, but the U.S. calendar is pretty heavy today, featuring industrial production, the National Association of Home Builders index, consumer prices, the Empire State manufacturing index, oil inventories and the Treasury Department monthly capital flows data.

Thin August trading conditions were magnified by holidays.  Some activities were curtailed for Assumption Day in Italy, Spain, France and Portugal.  Market closures were also observed for Liberation Day in South Korea and for Independence Day in India.

The first step toward an era of floating dollar exchange rates was taken 41 years ago this day when former U.S. President Nixon suspended dollar-gold convertibility.

The dollar is unchanged against the loonie, kiwi, and sterling.  The greenback has risen, however, by 0.3% against the yen, euro and Swissie, by 0.2% relative to the Australian dollar, and by 0.1% versus the yuan.

Share prices fell by 1.2% in China and Hong Kong.  There is continuing frustration that the People’s Bank of China hasn’t yet eased policy further.  There were some press reports that the PBOC might buy government bonds in the secondary market to amplify liquidity.

Equities also fell 0.8% in Singapore, 0.3% in Australia, 0.2% in Taiwan, and 0.1% in Japan but rose 0.9% in Malaysia, 0.5% in Indonesia and 0.6% in New Zealand. 

European stocks are lower with declines so far of 0.5% in Frankfurt, 0.4% in London, and 0.3% in Madrid and Paris.

Ten-year German bund and British gilt yields are three basis points higher.  The 10-year Japanese sovereign debt yield firmed by two basis points.

Consumer confidence in Australia sank 2.5% to a reading of 96.6 in August, reversing much a of 3.7% jump in July.

Australian labor costs rose 0.9% last quarter and by 3.7% from the second quarter of 2011.  Private labor costs posted gains of 1.0% from 1Q and 3.9% versus 2Q11.

The Conference Board’s index of Japanese leading economic indicators fell 1.3 points to a reading of 95.1 in June after a combined 1.3-point drop between March and May.  The index of coincident indicators edged 0.3 higher to 98.6.

Malaysian GDP rebounded 3.0% last quarter from a 3% drop in 1Q.  On-year growth accelerated to 5.4% from 4.7% in the year to 1Q.  The current account surplus narrowed 47% on quarter to 9.6 billion ringgits in 2Q.  Consumer prices were steady in July and posted a slightly smaller 12-month increase of 1.4% that month.

Retail sales in Singapore slid 0.4% in June and by 0.9% on year, depressed by a fall in auto sales.  Excluding autos, retail sales were 2.3% greater than in June 2011.

British labor statistics were reported.  The ILO-basis jobless rate of 8.0% in 2Q12 was a tad lower than forecast.  The claimant count of joblessness fell in July by 5.9K following a 1.0K uptick in June and constituted an unchanged 4.9% jobless rate.  Wage growth remained very subdued, posting 2Q12-over-2Q11 increases of 1.6% including bonuses and 1.8% excluding bonus pay.

Norway’s trade surplus of NOK 30.3 billion in July was 13.7% narrower than a year earlier but 2.6% wider than the surplus in June.

Finland posted a EUR 260 million current account surplus in June, similar to the mostly seasonal surplus in June 2011.

Danish producer prices rose 0.4% on month and by 1.2% on year in July.  Czech producer prices slipped 0.3% on month and rose by an unchanged 1.3% from a year earlier.  Hungarian industrial production sank 2.2% in June and posted a considerably smaller on-year rise of 0.6%.

Turkish seasonally adjusted unemployment remained at 9.0% in May but was 1.2 percentage points lower than in May 2011. 

South African retail sales rebounded 1.9% in June and posted a larger 12-month increase of 8.3% after a 6.4% gain in the year to May.

U.S. mortgage applications contracted further last week, dropping by 4.5% following a 1.8% decline in the week of August 3.  The 30-year fixed rate mortgage was merely 3.76%.  In addition to the aforementioned U.S. scheduled data releases today, Canada reports existing home sales.

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

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