Improved Market Psychology

September 27, 2012

Share prices, commodities, commodity-sensitive currencies, and sovereign debt yields are higher as tomorrow’s business calendar quarter-end approaches.

Stocks in Europe have thus far recovered 0.9% in France and Italy, 0.6% in Spain, 0.5% in Germany, and 0.4% in Great Britain.

A key impetus for this turnaround came from a bigger-than-anticipated liquidity injection by the People’s Bank of China in its daily money market operation.  Could a cut in central bank interest rates or reserve requirements be in the offing, investors wonder?  Share prices in China leaped 3.1%.  Elsewhere in the Pacific Rim stocks advanced by 1.1% in Indonesia and Hong Kong and 0.5% in Japan, Australia and Malaysia.

The 10-year British gilt yield increased four basis points.  The German bund yield is up a basis point, and futures point to a higher Treasury yield as well.

Oil prices climbed 0.8% to $90.70 per barrel after dipping marginally under $90. Gold firmed 0.2% to $1757.00 per ounce.

The dollar has lost 0.5% against the Australian and New Zealand dollars and 0.2% versus the loonie and sterling.  The greenback is steady, however, relative to the euro, Swiss franc and yuan and off 0.1% against the yen, which continues to trade more strongly than 78 per dollar without evoking intervention by Japanese officials.

Tomorrow also marks the end of the first half of Japan’s fiscal year.  Japanese stock and bond transactions generated a JPY 464 billion net capital outflow in the week of September 22, shifting from an inflow of JPY 747 billion in the previous week.

Three important sets of euro area-wide data were released.

  • The retail purchasing managers index improved to a 3-month high of 47.1 in September from 44.4 in August.  It was as low as 43.3 in May.  September’s improvement, however, masked further deterioration in Germany whose retail PMI score fell by 0.7 points to a five-month low of 49.2.  The French retail PMI jumped 3.7 points to 47.9.  Although a 3-month high, the reading remained below the 50 no change level.  Italy’s retail PMI climbed 5.8 points to 42.9, a 12-month peak.
  • Overall Euroland economic sentiment dropped 1.1 points to 85.0 in September.  The reading six months earlier was 94.4.  Retail sector sentiment fell by 1.4 points to negative 18.6, and construction’s reading recovered 1.2 points to minus 31.9.  Consumer confidence dropped 1.3 points to negative 25.9, while industrial sector confidence was 0.7 points weaker at minus 16.1.  Euroland’s business climate index weakened 0.16 points to a reading of 1.34, its lowest score since October 2009.  In between, such had crested at +1.42 in February 2011.
  • The acceleration of money and credit growth in July was largely reversed last month.  The 12-month M3 money stock expansion rate was 2.9%, down from 3.6% in July and leaving the increase for June-August at 3.2%.  Private sector credit and loans posted on-year declines of 0.6% and 1.2%.  Loans to non-financial companies contracted 0.8% from a year earlier, twice as much as the drop between July 2011 and July 2012.

German import price inflation accelerated sharply in August to a 12-month increase of 3.2% from 1.2% in July.  The monthly gain of 1.3% reflected a 6.5% leap in energy costs.  Non-oil import prices were unchanged on month and just 1.1% higher than a year earlier.  Export prices climbed 0.4% on month and 1.8% on year.

German labor statistics were pretty much as expected.  The jobless rate of 6.8% since last November didn’t change, and unemployment increased in September by 9K in seasonally adjusted terms after advances of 11K in August and 8K in July.  On-year growth in employment slowed to 1.0% in August from 1.1% in July, 1.2% in 2Q and 1.4% in the first quarter.

Italian business sentiment exceeded expectations in September, printing at 88.3 after 87.3 in August and 87.1 in July but well below the 94.0 reading in September 2011.  Finnish business confidence softened this month, but consumer sentiment improved.

Spanish retail sales fell by 2.1% between August 2011 and August 2012. Belgian CPI inflation slowed to 2.8% in September from 2.9% in August.  Icelandic CPI inflation quickened to 4.3% from 4.1% in August.  Denmark experienced jobless rates of 6.2% seasonally adjusted in August and June flanked around 6.3% in July.

Britain’s current account deficit soared to a record GBP 20.767 billion in the second quarter, which was 35% larger than the 1Q deficit and 65% bigger than forecast by street analysts.  The investment earnings account produced and outflow of 5.2 billion pounds versus an inflow of 8.1 billion pounds in the second quarter of 2011.  The goods and services trade deficit widened 24.7% on quarter to GBP 10.1 billion.

British real GDP growth last quarter was revised to negative 0.4% from minus 0.5% and an initial estimate of minus 0.7%.  Business investment expanded 0.9%, but exports, government spending, and personal consumption recorded quarterly declines of 1.1%, 1.6%, and 0.2%.  GDP was 0.5% lower than a year earlier.

The National Bank of Romania left its key interest rate at 5.25%, its level since a 25-basis point cut in March.  The Czech National Bank, in contrast, halved its key interest rate to 0.25%.  Both outcomes matched analyst forecasts.

Portuguese consumer confidence and business sentiment dropped by 2.2 points and 0.2 points between August and September.

Austria’s purchasing managers index in manufacturing slipped further below the 50 breakeven point to 45.1 in September from 46.7 in August, 47.4 in July and 50.1 in June.

South Korea reported softer business confidence in October among both manufacturers and non-manufacturers, whose indices fell by 3 and 2 points, respectively.    New Zealand business confidence also fell, dropping to a reading of 17.0 in September from 19.5 in August. 

Chinese industrial profits recorded a fifth consecutive 12-month decline, dropping by a greater 6.2% in the year to August after minus 5.4% in July.

Scheduled U.S. data arriving today are revised GDP, durable goods orders, pending home sales, and weekly jobless claims.  Canadian average weekly earnings figures are due, too.

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

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