Fresh Euroscepticism as German and French Leaders Disagree

September 24, 2012

Risk aversion staged a comeback as the final week of the third calendar quarter got under way.

  • In European trading, share prices have fallen by 1.6% in Spain, 1.5% in Italy, 1.2% in France, 0.6% in Germany, and 0.5% in Britain.
  • In the Pacific Rim, stocks fell 1.3% in Vietnam, 0.7% in Malaysia, 0.5% in Japan and Australia, 0.4% in India and 0.2% in Hong Kong.  China’s bourse rose after an initial stumble.
  • The dollar and yen are stronger against commodity-sensitive currencies and European currencies.  The greenback has risen 0.8% against the kiwi, 0.6% versus the euro, 0.5% relative to the Australian dollar, 0.4% against the loonie and Swiss franc, 0.2% against sterling and 0.1% versus the yuan.  The yen is 0.1% firmer relative to the dollar than Friday’s close.
  • Oil and gold prices have each slumped.  Oil plunged 1.4% to $91.60 per barrel, and gold is down 1.0% at $1759.70 per ounce.
  • Ten-year sovereign debt yields have fallen by four, two and one basis points in Germany, Britain, and Japan.  The 10-year Treasury futures yield is lower.

A disagreement arose over the weekend between German Chancellor Merkel and French President Hollande over the process of promoting a banking union.  Hollande’s approval ratings sank to the lowest level since he was elected earlier this year.  Reports surfaced that the Greek need for outside aid is being revised upward yet again.  Spanish official hesitation increased over the weekend against requesting outside aid and submitting to mandated reforms.  Without that step, Draghi’s bond-buying scheme will not get out of its starting block.  Another rumor today is that officials are trying to stretch the effective size of the ESM.

The German IFO Institute released mixed indications of the German economy. 

  • The more widely watched business climate index dropped 0.9 points to a reading of 101.4 in September, contrary to forecasts of a marginal uptick.  The high point this year was a score of 109.7 in March.  Perceived current conditions fell by 0.8 points to 110.3, while the expectations component fell to 93.2 from 94.2 in August and 102.6 last March.  In the sectoral breakdown, manufacturing fell 2.9 points, and construction dropped 3.1 points.  However, distributive trades improved:  wholesaling rose 2.1 points after a 5.9-point slide in August, and retailing climbed 0.7 points after plunging 9.7 points the month before. 
  • IFO’s survey of the business climate in services improved for the first time since May, rising to 14.1 in September from 12.7 in August and 15.7 in July.  Current conditions rebounded 4.0 points, but expectations slid a point.

Published minutes from the Bank of Japan’s Board meeting of August 8-9, which didn’t change policy, foreshadowed the subsequent expansion of quantitative easing decided at the subsequent September meeting.  Officials had become more worried about the impact of a faltering global environment on Japan’s economy, and a suggestion was even made to consider steps to boost expected inflation.  Assessments of industrial production and exports were downgraded.

A more recent concern, expressed by Japanese Prime Minister Noda, is that the island dispute with China could exacerbate the stall in Japan’s recovery.

Australia’s government recorded a A$ 43.7 billion budget deficit last fiscal year, very close to target.  The plan to restore a surplus in FY 2013-14 could be impeded by softer commodity prices.

Singapore CPI inflation of 3.9% in August was the lowest since November 2010.  Core inflation eased to 2.2%.  Vietnam consumer prices climbed 6.5% in the year to September. Taiwanese industrial output was 1.9% greater in August than a year before, and Taiwan’s 4.3% jobless rate last month was as expected. Hong Kong’s current account swung to a deficit of HKD 9.346 billion in the second quarter of this year from surpluses of HKD 5.653 billion in 1Q12 and HKD 10.592 billion in the second quarter of 2011.

Revised Dutch GDP figures show growth in 2Q12 of 0.2% from 1Q and negative 0.4% from the second quarter of 2011.  The Netherland’s experienced a recession that ended in 4Q11.  Ominously, Dutch business sentiment weakened 2.1 points to a negative 6.7 reading in September.

Czech consumer confidence fell 2.5 points to minus 29.8 in September, outweighing a 0.3-point rise in business sentiment to +2.7 and leaving the composite business climate gauge 0.2 points lower than in August.  Hungarian retail sales posted a larger-than-forecast 2.6% on-year drop in July.  Hungarian business sentiment fell in September by 1.5 points to negative 16.4, while consumer confidence rose 3.2 points to negative 49.5. 

Finnish producer prices rose 1.1% on month and accelerated to a 1.5% 12-month advance.  Austrian industrial output edged 0.1% higher in July and was 2.0% greater than a year earlier. 

Two U.S. data releases are scheduled today: the Chicago Fed National Activity Index and the Dallas Fed manufacturing index.  Israel’s central bank has a scheduled interest rate announcement and is not expected to change such.

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

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