New Frustrations over Global Growth

August 24, 2012

Share prices continue to be depressed by growth prospects in China, Europe, and the United States.  Investors wonder what central banks might do to promote activity.  The People’s Bank of China did not cut interest rates or reserve requirements overnight.  A key focus next week are the speeches at the Jackson Hole Symposium of Fed Chairman Bernanke and ECB Pdt Draghi.

German Chancellor Merkel and Greek Prime Minister Samaras hold bilateral talks today.

Share prices declined 1.3% in Hong Kong, 1.2% in Japan, China, and South Korea, and 1.1% in New Zealand and the Philippines.  In Europe, Spain’s IBEX is so far down 1.3%, and the Paris Cac, German Dax and British are 0.9%, 0.7% and 0.5% weaker.  U.S. stocks have also opened with a drop.

The dollar has risen 0.5% against the euro but continues to trade near 1.25 where not long ago it was challenging to strengthen past 1.20.  The Swiss franc slid in tandem overnight with the euro, and the greenback also shows gains of 0.4% against the Australian dollar, 0.3% verfsus the kiwi, 0.2% relative to sterling, and 0.1% against the yen and yuan.  Only the loonie (up 0.1%) has outpaced the dollar among major currencies.

Oil and gold prices are down 0.3% and 0.1% on the day at $95.96 per barrel and $1670.40 per ounce.

Ten-year German bund and British gilt yields have declined five basis points each.  The 10-year U.S. Treasury is off four basis points, and the 10-year JGB is two bps lower.

Second-quarter British GDP was revised to a show a somewhat smaller quarterly drop of 0.5%.  Gross fixed capital formation (off 3.2%), exports (minus 1.7%) and personal consumption (down 0.4%) fell significantly.  Government spending stagnated.  Inventory building was the main mitigating source of growth, but that was unintended and has adverse implications for 3Q.  On an industrial breakdown, production slumped 0.9%, and construction dived 3.9%.  Even services dipped 0.1%.  On-year GDP growth was also negative 0.5%.

U.S. orders for durable goods climbed 4.2% in July, beating expectations, but core nondefense ex-aircraft orders were very disappointing, falling 3.4% on top of a 2.7% decline in June.

Japanese corporate service prices firmed 0.1% in July but were 0.2% lower than a year earlier.

New Zealand posted an unexpected NZD 15 million trade surplus in June, albeit the smallest surplus in a half year and down from NZD 287 million in June and NZD 103 million a year before.

The Conference Board reported that Australia’s index of leading economic indicators rose 0.3% in May, and the coincident index was 0.1% higher.

Industrial production in Singapore plunged 9.1% on month in July, cutting the 12-month rate of increase to 1.9% from 8.0% in June.

Finnish PPI inflation slowed further to 0.2% in July from 0.5% in June.  Spanish PPI inflation ticked up to 2.6% in July from 2.5% the month before. 

Hungarian retail sales fell 1.7% between June 2011 and mid-2012.  Austrian industrial output fell 1.6% in June and rose merely 0.3% from a year earlier.  Polish retail sales rose 6.9% on year in July, but the Polish jobless rate remained above 12% at 12.3%.

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

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