Anxiety Surrounding Summit of EU Leaders in Brussels

October 18, 2012

The dollar strengthened 0.4% against the yen but weakened 0.2% relative to the yuan.  Otherwise, the greenback is unchanged from the close on Wednesday against the Swiss franc, kiwi, sterling and loonie.  It is up 0.1% against the euro but down 0.1% versus the Australian dollar.

As EU leaders gather for a two-day summit in Brussels, the fate of a previously promised banking union appears in jeopardy as Germany and France remain on different pages on the matter.  Concern is elevated over the health of Spanish banks, and the IBEX index of Spanish equities is down 0.7% in spite of decent results in today’s auction of Spanish 3-year, 4-year, and 10-year sovereign debt.  Stocks also fell 0.5% in Italy but show gains of 0.4% in Germany and 0.1% in Britain.

Equities rallied in the Pacific Rim earlier today, climbing 2.0% in Japan, 1.5% in China, 1.0% in India, 0.9% in New Zealand, 0.7% in Australia, and 0.5% in Indonesia, Hong Kong and Singapore.

The yield on Japanese 10-year JGBs rose two basis points to 0.79%, while German bunds and British gilts are each unchanged.

Oil prices are steady at $92.11 per barrel.  The $1749.20 per ounce price of gold is unchanged.

Chinese real GDP rose by an as-forecast 7.4% in the year to 3Q12, down from an on-year pace of 7.6% in the second quarter, 9.1% in the third quarter of 2011, 9.6% in the third quarter of 2010, and 11.8% in the first quarter of 2010.  That’s when growth crested.  The year-to-date advance in GDP of 7.7% is down from 9.2% in calendar 2011 and 10.4% in 2010.

China also released retail sales, industrial production, house prices, and fixed asset investment data for September.

  • Retail sales accelerated to a 12-month increase of 14.2% from 13.2% in August.  Analysts had predicted another gain of 13.2%.  Instead, retail sales growth reached a six-month high.
  • Industrial production growth improved less dramatically, firming to 9.2%, a 2-month high, from 8.9% in August.
  • New home prices fell in more cities (22 of 70 on month and 55 of 70 on year) than reported for the prior month.
  • Fixed asset investment in January-September posted an on-year increase of 20.5% versus 20.2% in January-August and 23.8% in full-2011.

Japanese stock and bond transactions in the week of October 13 generated a net capital inflow of JPY 819 billion, 31.6% greater than in the week of October 6.

Australian business conditions according to the National Australian Bank index rose three points to +1 in the third quarter, while business confidence improved a point on quarter to a reading of minus 2.  New Zealand job ads fell 2.9% last month.

Hong Kong unemployment ticked a tenth percentage point higher to 3.3% in September, matching expectations. 

Germany’s government revised projected GDP growth in 2013 downward to 1.0% from 1.6%.  GDP this year is expected to rise 0.8%, down form 3.0% in 2011.  Officials anticipate a 1.9% CPI inflation rate next year.

British retail sales outperformed expectations in September, rising 0.6% on month and 2.5% on year.  Excluding motor fuel, sales went up 0.6% on month and 2.9% on year.

The French index of leading economic indicators posted a bigger rise of 0.6% in August following a 0.3% increase in July, but the index of coincident indicators was flat in the more recent month.

Italy’s current account deficit narrowed to a deficit of EUR 2.528 billion in August from EUR 5.08 billion in August 2011.

Spanish home prices contracted 9.3% on year in October.  Spain’s trade deficit of EUR 3.14 billion in August was nearly twice as large as the July shortfall.  Portuguese producer prices rose 0.6% on month and accelerated to a 12-month increase of 4.6% in September from 4.0% in August.

Swiss real exports and imports posted monthly increases of 2.6% and 3.0% in August, lifting the nominal trade surplus to CHF 2.015 billion from CHF 1.607 billion in July.

Sweden’s jobless rate remained at 7.8% on a seasonally adjusted basis in September and increased two-tenths to 7.4% unadjusted.  The Dutch jobless rate was at 6.4% seasonally adjusted and 6.6% unadjusted last month.  Dutch consumer confidence fell by three points to a score of negative 32 in October. 

Hungary’s government augmented planned budget cuts in a further effort to secure outside debt-service support.  Hungarian wage inflation of 3.8% in August was considerably lower than the increase in January-July.

South African wholesale turnover increased 2.2% in August and 7.0% from a year earlier, down from an 8.8% advance in the year to July.

Scheduled U.S. data releases today include the index of leading economic indicators, the Philly Fed manufacturing index, and weekly jobless insurance claims.  A central bank interest rate decision is awaited from Turkey, and minutes from Brazil’s October 9-10th policy meeting will be published.  Belgium will release consumer confidence.

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

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