PMI and IFO Data Show Darkening German Economy

October 24, 2012

The euro and Swiss franc have declined 0.3% against the dollar, which is otherwise off 0.6% against the Australian dollar, 0.4% versus sterling, 0.3% relative to the kiwi, 0.2% against the loonie and 0.1% vis-a-vis the yen.

Today’s focus will be the FOMC statement.  No press conference is scheduled, so the statement will be released at 14:15 EDT.

U.S. stocks had fallen sharply Tuesday on poor corporate earnings.  The downward momentum extended into Asia’s day.  Any optimism from a better Chinese purchasing managers report was quelled by poor Ezone PMI readings especially from Germany.  Stocks in the Pacific Rim sank 0.8% in Australia, 0.7% in South Korea and Japan, 0.6% in the Philippines, 0.4% in India, 0.3% in Taiwan and 0.2% in Singapore and China.  Equities have risen 0.6% in France, Britain, and Italy, 0.4% in Germany and 0.3% in Spain.

The 10-year British gilt yield is four basis points higher.  German bunds are unchanged, and the Japanese JGB has dipped a basis point.

Oil prices recovered 0.3% to $86.90 per barrel.  Gold edged 0.1% firmer to $1710.40 per ounce.

Prospects for an Australian interest rate cut next month have been hurt by an acceleration of CPI inflation in that economy.  The seasonally adjusted CPI rose 1.2% sequentially in the third quarter, most since1Q11, and to an on-year pace of 2.0% from 1.2% in the second quarter.  The trimmed mean gauge of core inflation accelerated to 2.4% from 2.0%, while the weighted median core CPI advanced 2.6% on year, up from a 1.9% increase in the year to 2Q12.

China’s preliminary HSBC purchasing managers index for manufacturing recorded its 12th consecutive sub-50 reading in October.  However, at 49.1, such was 1.2 points better than the September reading and constituted a 3-month high.  Orders were at a six-month high.

Germany’s composite purchasing managers index exhibited an econoic relapse, printing at 48.1 in October from 49.2 in September and 47.0 in August.  Readings in the manufacturing PMI of 45.7 after 47.4 and in the services PMI of 49.3 after 49.7 also represented two-month lows. 

The German IFO business climate index fell to a two-year low of 100.0 in October from 101.4 in September, 102.3 in August and a 2012 high of 109.6 in February.  All of the incremental deterioration in October was concentrated in current conditions, which had a reading of 107.3 from 110.3 in September.  Expectations remained weak with a score of 93.2. 

Euroland’s composite PMI reading of 45.8 was 0.6 points lower than street forecasts and at a 40-month low.  The October data suggest a sharper rate of GDP contraction in the fourth quarter than in the third.  The manufacturing and services PMI readings were respectively at 45.3 and 46.2 in October.  Scores below 50 imply contraction. 

The French composite PMI recovered to a two-month high of 44.8 in October from 43.2 in September.  Manufacturing gained 0.6 points to 43.3, while services improved 1.2 points to a score of 46.2 on this preliminary estimate.

Euroland government debt rose to 90.0% of GDP in the second quarter from 88.2% in 1Q and 87.1% in the second quarter of 2011.  Greece had the highest debt ratio, 150%, and the ratios in Italy, Portugal, Ireland, and Belgium also surpassed 100% of GDP.  Interestingly, Spain’s 76.0% debt ratio was lower than Germany’s of 82.8%.

Italian consumer confidence rose to a three-month high of 86.4 in October from 86.2 in September.

The CBI October survey of British industrial trends was considerably weaker than anticipated.  The reading of minus 23 was 15 points lower than in September and the weakest score since December 2011.

Swedish consumer confidence fell to a reading of negative 2.9 from positive 2.0 in September.  Manufacturing confidence sank 5 points to minus 16, and Sweden’s overall economic tendency produced a disappointing score of 92.3 in October after 95.6 in September.

Czech consumer confidence rose 2.8 points to negative 27.0, while business sentiment dipped to 2.6 from 2.7.  Business sentiment in Hungary rose 1.8 points to negative 14.6 in October.

Finnish nominal retail sales rose 3.1% on year in September, but volume was down 0.9%.  Finnish producer prices were unchanged on month and up 1.7% on year in September. 

Consumer prices in South Africa rose 0.9% in September, producing a larger 12-month increase of 5.5% after August’s on-year 5.0% pace.

The Bank of Canada’s Monetary Policy Report is due at 14:30 GMT.  The Reserve Bank of New Zealand will announce its latest interest rate decision around 20:00 GMT today.  Policymakers at the Swedish Riksbank are also holding an interest rate meeting today and will reveal their decision tomorrow. 

Scheduled U.S. economic data releases today include the FHFA house price index, new home sales, and the preliminary manufacturing PMI report.

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

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