Old Worries Return

December 20, 2012

Fiscal cliff talks appear to have bogged down.

Greek Finance Minister Stournaras said a Greek departure from the euro zone remains possible and called 2013 a make or break year.

Weak revenue growth in Australia led Treasurer Swan to back away from forecasting a budget surplus this fiscal year. 

There were other signs of general economic weakness.

  • New Zealand real GDP expanded just 0.2% last quarter, half as much as forecast and by the least in five quarters.  Consumption was flat, and investment dropped 1.8%.  Business sentiment in New Zealand declined 3.7 points in October to a reading of 22.7.
  • British retail sales volume stagnated in November, disappointing expectations of a 0.3-0.4% advance on month.  Sales in September-November also were unchanged from the prior three months and posted a smaller on-year gain of 1.4% versus a rise of 2.3% in the year to June-August.
  • Dutch consumer spending was 2.4% lower than a year earlier in October, and the Dutch jobless rate edged up 0.2 percentage points to 7.0% in November.  Finally, consumer sentiment in the Netherlands dipped two points to a reading of minus 39 in December.
  • Danish consumer confidence sagged 3.4 points on month to minus 4.7.  A preliminary reading on Ezone consumer sentiment this month is due later today.
  • Italian retail sales fell for a fourth straight time in October, dropping 1.0% on month and 3.8% on year.
  • The Bank of Japan downgraded its economic assessment, observing further weakness in exports and industrial production that could infect business sentiment and confidence and citing strains with China as a potentially adverse risk factor.

Japan’s Nikkei, which had its best trading day of 2012 on Wednesday, fell 1.2% today.  In other bourses around the Pacific Rim, stocks fell 1.1% in Taiwan, 0.5% in Indonesia, and 0.1% in India but gained by 0.8% in the Philippines, 1.3% in New Zealand, 0.6% in China, 0.5% in Singapore and 0.4% in Australia.  There’s been little stock market movement in Europe outside of a 0.4% drop in Spain.  The German Dax and Paris Cac are unchanged from the Wednesday close.  The British Ftse is up 0.1%, and Milan’s exchange is off 0.1%.

The dollar has lost 0.3% against the traditional hard currencies (euro, Swiss franc and yen), 0.2% versus sterling, and 0.1% relative to the Australian dollar and kiwi.  The Chinese yuan and Canadian dollar are unchanged.

Ten-year British gilt and German bund yields dipped by two and one basis points.  The Japanese JGB is unchanged.

Gold prices edged 0.1% higher to $1669.60 per ounce.  Oil bumped up against the $90 per barrel threshold and settled back 0.1% on balance to $89.91.

At the first Bank of Japan Policy Board meeting after the LDP’s election victory, quantitative monetary stimulus was expanded by JPY 10 trillion to a total of JPY 101 trillion.  The overall message was mixed, however.  Discussion over what constitutes medium price stability was deferred to the next meeting, and the short-term inflation target of 1% was retained.  The overnight money target of 0-0.1% was not changed, and a recommendation to adopt a 0.0% interest rate on the Complementary Deposit Facility was rejected by all the other policymakers.  At his press conference, Governor Shirakawa defended the virtue of central bank independence, rejected government debt monetization, and argued that elements of government share responsibility for Japanese deflation.

The Conference Board’s index of Chinese leading economic indicators rose 1.1% last month, less than its gain in October, and the index of coincident Chinese economic indicators climbed by 0.9%, also a shade less than in October.  On-year Hong Kong CPI inflation dipped to 3.7% in November from 3.8% in October. 

Japan’s transformative election had immediate influence on capital flows.  Stock and bond transactions last week generated a net JPY 1.361 trillion capital inflow versus an outflow of JPY 489 billion in the week of December 8.

Germany reported import price and PPI data, each of which exhibited less inflationary pressure than anticipated.  Import prices were unchanged on month in November after declining by 0.7% in September and 0.6% in October.  The 12-month increase of import prices slowed to 1.1% from 1.5% in October and 3.2% in August.  Export prices also stagnated in November and recorded a smaller on-year increase of 1.5%.  The German producer price index slipped 0.1% from October and was just 1.4% higher than a year earlier.  Energy producer prices fell 0.4% on month.

Swedish producer prices were unchanged in November and 3.1% lower than a year earlier following a drop of 2.3% in the year to October.  Spanish housing permits posted a drop of 34.3% between October 2011 and October 2012.  Danish retail sales increased 0.6% in November but were 0.5% lower than a year before.

The U.S. reports revised third quarter GDP today as well as the Philly Fed manufacturing index, the index of leading economic indicators, existing home sales and weekly jobless insurance claims.  In Canada, investors and analysts await the arrival of retail sales and average earnings data.  The Portuguese current account and Belgium’s business climate index get released, too.

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

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