Picking Up the Pieces

April 16, 2013

Monday was an extremely difficult day for financial markets.  A poisonous atmosphere was well established even before the terrorist explosions in Boston.  Gold was in freefall, posting the worst selloff in decades on fear of European government sales.  Chinese data had been disappointing, and worries about the U.S. economy had resurfaced.  The mood overnight was one of cautious watching.  There has been some pull-back.

  • Gold has recovered 1.9% but remains below $1,400 per ounce.  Oil has fallen a further 0.5% to $88.30 per barrel.  Goldman Sachs stuck by its bearish forecast for gold in spite of yesterday’s historic correction lower.
  • Japan’s 10-year JGB yield dropped six basis points to 0.59%.  The British 10-year gilt is up two bps.  The German bund is steady.
  • Yesterday’s currency movements were partly trimmed.  The dollar recovered 1.1% against the yen but settled back 1.0% against the kiwi, 0.6% versus the euro and Australia dollar, 0.3% relative to the loonie and Swissie, 0.2% against sterling and 0.1% vis-a-vis the yuan.
  • Share prices rose 2.1% in India, 1.0% in Indonesia, 0.9% in China, 0.5% in Taiwan, 0.2% in Singapore and Malaysia and even 0.1% in South Korea.

There’s been more bad news.  The injury count in Boston is up to 141 with 17 people in critical condition.  The ZEW indices of investor sentiment toward Germany and the euro area weakened more than forecast in April.  British house prices showed less resilience in February, and CPI inflation of 2.8% in the year to March was just as much above target as in the prior month.  Moody’s reclassified the outlook for China’s credit rating to “stable” from “positive.”  Australian new car sales last month fell further.   And China’s central bank drained liquidity a day after news that economy had grown more slowly than assumed in the first quarter of 2013.

Euro area core CPI inflation accelerated to 1.5% in March from a 1.3% on-year pace in February.  Prices for non-energy industrial goods jumped 3.8% on month.  The headline CPI increased 1.2% from February and by 1.7% from March 2012.

Investor confidence in Germany had a ZEW Institute reading of 36.3 in April, down from 48.5 in March.  Current conditions slide to a 9.2 score from 13.6.  The expectations index for Euroland fell 8.5 points to 24.9, and its current conditions component of minus 76.0 was only 0.1 points better than in March.

Four sets of British price data were reported.

  • Consumer prices:  rose 0.3% on month in March and 2.8% on year (same as in February); core CPI inflation ticked 0.1 percentage point higher to 2.4%.  The Bank of England targets CPI inflation at 2.0%.
  • Retail prices: rose 3.3% in the year to March versus 3.2% in the year to February and advanced 0.4% sequentially from the prior month.  Excluding mortgage interest, the so-called RPIX, was a 12-month advance of 3.2% in March.
  • Producer prices:  the producer output price index rose 0.3% on month and 2.0% on year; the core PPI-O was unchanged at 1.3% on year.  The producer input index dipped 0.1% on month and slowed in on-year terms to 0.4% from 2.1% in the year to February.  Core PPI-I inflation was 1.6%.
  • The ONS home price index, previously compiled by the Department of Communities and Local Governments, was unchanged on month in February and recorded a smaller 12-month 1.9% rate of rise after advancing 2.2% in the year to January and 3.3% in the year to December.

Spain’s auctions of 6-month and 12-month paper yielded lower interest rates than at the previous auction.

Italy’s trade position swung to a surplus of EUR 1.086 billion in February from deficits of EUR 1.61 billion in January and EUR 1.195 billion in February 2012.  Imports plunged 5.2% on month and 2.6% on year.  Portugal recorded a larger EUR 259 million current account deficit in February versus a shortfall of EUR 17 million the month before.

The Swiss producer price/import price index was unchanged on month in March and 0.3% lower than a year before.  Switzerland continues to experience deflationary pressures that have prompted central bank officials to keep the franc/euro cross rate on a very tight leash that prevents appreciation beyond 1.2000.  Austrian CPI inflation slowed to 2.3% in March from 2.5% in February.

Minutes from the Reserve Bank of Australia were similar in content and tone to those in last month’s meeting.  There’s scope to cut interest rates if needed, and the Aussie dollar was identified again as a downside growth risk.  New Zealand’s finance minister called the kiwi overvalued.

The Sri Lankan central bank as expected left its repo and reverse repo rates unchanged at 7.5% and 9.5%, respectively.

An advisor to India’s central bank noted the slowdown of inflation and made dovish remarks about future monetary policy possibilities.

Australian motor vehicle sales dropped 0.6% last month following declines of 2.1% in January and 0.1% in February.  Sales also posted a significantly smaller 12-month gain of 4.5% versus 9.4% in February.

There was more North Korean saber-rattling overnight.

The U.S. will be releasing consumer prices, industrial production, housing starts, building permits and weekly chain store sales data today.  Kocherlakota, Duke, and Yellen of the Federal Reserve speak publicly.  The IMF releases its World Economic Outlook forecasts, and Director Legarde speaks publicly.  Canada releases its monthly survey of manufacturing sales and orders as well as data on portfolio investments into and out of the country.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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