Stocks Falter in Europe

October 23, 2012

Share prices have dropped 0.9% in Germany, 0.8% in Britain, 0.6% in Italy and France and 0.5% in Spain.  In the Pacific Rim earlier, equities declined by 1.3% in China, 0.8% in South Korea, 0.5% in Taiwan, 0.4% in India and 0.3% in Indonesia but rose 0.7% in Hong Kong, 0.4% in New Zealand and 0.1% in Australia.

The yen softened initially to 104.62 per euro, weakest since May 4, and to 80.02 per dollar, weakest since July 5.  The yen subsequently recovered and is unchanged on balance against the U.S. currency after expectations were dampened over the likely size by which the Bank of Japan will expand quantitative easing at the end of this month. 

The dollar otherwise shows net overnight gains of 0.3% relative to the Canadian and Australian dollars, 0.2% versus the kiwi, euro and Swiss franc, and 0.1% against the yuan and sterling.

The yields on 10-year British gilts and German bunds are each a basis point lower.  The 10-year Japanese JGB firmed a basis point.

Gold and oil prices dropped additionally by 0.7% to $1714.60 per ounce and 0.4% to $88.32 per barrel.

Obama and Romney held their final presidential debate.  Although devoted to foreign policy, the conversation often veered back to domestic economic policy.  The Middle East was the subject of all but a 15-minute segment devoted to China.  Europe and the euro were not mentioned at all.  Among undecided voters, Obama was deemed to have won.  However, polls continue to show the race as a toss up, with Romney commanding late momentum in several pivotal states.

Remarks by Japanese Finance Minister Jojima suggested that market rumors of a 20 trillion yen increase in Bank of Japan planned asset purchases are probably too high.  In many countries it is taboo for government officials to be even talking about what the central bank might or might not be about to do.

A study by the IMF found the Aussie dollar to be the most overvalued currency among the majors.

Sri Lanka’s central bank left its repo and reverse repo rates unchanged at 7.75% and 9.75%, respectively.  Analysts were not expecting a change.

More disappointing economic data were released from several countries around the world.

  • French business sentiment fell by 5 points to a reading of 85.  The drop’s size was the largest August 2011, and the level was the lowest since August 2009.
  • Australia’s index of leading economic indicators slumped 0.8% in September, the first decline since May.  The coincident index stagnated.
  • Danish consumer confidence fell by 3.3 points to a negative score of 5.5 in October.
  • The Bank of Spain predicted a contraction of that country’s GDP last quarter of 0.4% from 2Q and 1.7% from the third quarter of 2011.
  • Dutch consumer spending was 2.0% lower than a year earlier in August.
  • Italian imports from countries outside the EU fell by 4.3% between August and September.  Exports declined by 2%.
  • Polish retail sales dropped 1.3% on month and to 3.1% on year in September from a rise of 5.8% in the year to August.
  • Poland’s jobless rate was 12.4% in September, same as the level in August.

Consumer price inflation in Singapore accelerated more sharply than anticipated to 4.7% in September from 3.9% in August and 4.0% in July.  A 3.0% on-year rise in Taiwanese industrial production last month was only half as much as anticipated.

South Africa’s index of leading economic indicators firmed 0.2% in August.

U.K. mortgage approvals increased to an as-expected 31,175 in September according to the British Bankers Association. Net mortgage lending rose 0.5%.

Finnish unemployment eased to 7.1% in September from 7.3% in August but was still slightly higher than 6.9% in September 2011.

Moody’s downgraded the credit rating of five regions in Spain.

The Bank of Canada has a pre-scheduled interest rate announcement at 13:00 GMT (see my preview).  The Fed begins a two-day FOMC meeting today.  Both it, the Swedish Riksbank and the Reserve Bank of New Zealand will announce monetary policy decisions on Wednesday. 

Scheduled U.S. data arrivals today include the Richmond Fed manufacturing index and weekly chain store sales.  Canadian retail sales and euro area consumer confidence will be reported, too.

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

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