Markets Less Fearful than Yesterday

May 24, 2013

The week is ending with somewhat less anxiety than Thursday, helped by

  • Better-than-projected German IFO business climate in May.
  • Better-than-expected German consumer confidence and French business sentiment.
  • Soothing remarks from Japanese officials and ECB Pdt Draghi.
  • The ability of U.S. stocks to close down only slightly on Thursday.

Nonetheless, equities are mostly lower in the Pacific Rim and Europe.  An exception was a 0.9% rebound in Japan’s Nikkei, but that followed a 7.3% plunge on Thursday.  Share prices dropped by 1.6% in Australia, 1.4% in New Zealand, 1.8% in Singapore, 0.6% in Malaysia and the Philippines, 0.3% in Taiwan and 0.2% in Hong Kong but rose 0.7% in Indonesia, 0.6% in China, and 0.2% in India.  In Europe, stocks are down 0.7% in Germany and 0.6% in Britain and Spain.  They are unchanged in Paris and up 0.1% in Milan.

The dollar is mixed.  It has risen 0.8% relative to the Australian dollar and 0.5% versus the kiwi and loonie, but has fallen 0.8% against the Swiss franc, 0.3% versus the yen and euro and 0.1% relative to sterling.  The yuan is steady.

A big injection of liquidity by the Bank of Japan has depressed the 10–year JGB yield to 0.83% from a peak of 1.0% Thursday.  The 10-year British gilt has edged up a basis point, and its German bund counterpart has edged a basis point lower.

Gold and oil prices are each off 0.4% at $1385.70 per ounce and $93.88 per barrel.

The German IFO index for the business climate recovered 1.3 points to 105.7 in May but remained a full point lower than its March reading.  All of the improvement occurred in current conditions, which printed 2.7 points higher at 110.0.  Business expectations scored a 101.6, same as in April.  The better data in May were shared by manufacturing, retailing and wholesaling.  The reading for construction of 1.2 was 1.6 points lower than in April.

The IFO services climate index for Germany also rose, gaining 2.6 points to a reading of 15.0.  As in the business survey, current conditions were responsible for the improvement.

German consumer confidence rose to 6.5 in June from 6.2 in May and 5.9 in both March and April.

Business sentiment in France increased to a reading of 92 in May, best in a year, from 88 in April.  Analysts were projecting a reading of 89.

BOJ Governor Kuroda reassured markets that monetary policymakers are monitoring developments in Japanese bonds and stocks.  Japanese Economics Minister Amari said the yen’s drop on Thursday followed a big run-up and is not too worrisome.  ECB Pdt Draghi expressed more confidence in the common currency union than existed a year ago.

Details of German GDP last quarter were published.  GDP slid 0.1% on quarter, less than a drop of 0.7% in 4Q12.  Although down in on-year terms by 1.4%, the year-over-year decrease after adjusting for variations in the number of working days was just 1.4%.  Personal consumption rose 0.8% on quarter following a 0.3% drop in 4Q12 and accounted for 0.4 percentage points of positive GDP growth.  But domestic demand as a whole stagnated because of a 1.5% drop in business investment and a 0.1% dip in government spending.  Net exports supported GDP growth marginally but that lift was mostly neutralized by a marginal drag from inventories.

According to the MNI index of Chinese business activity, there was a 1.4-point deterioration to a reading of 57.1 in May.

New Zealand’s trade surplus fell to a 3-month low of NZD 157 million in April as exports slumped sharply.

The Filipino trade deficit narrowed 38.7% to $593 million in March.  Singapore’s current account surplus widened 6.3% on quarter to SGD 13.6 billion in 1Q13.

In contrast to Germany’s improved consumer confidence, such in Italy unexpectedly fell to a reading of 85.9 in May from 86.3 in April.  And in Sweden consumer confidence printed at 3.6, down from a 5.2 reading in April. 

According to data from the British Bankers Association, U.K. mortgage approvals of 32,153 in April fell short of expectations but were above the total in March.

On the price and wage front, wage inflation in Italy remained at 1.4% in April.  Wage gains in Iceland accelerated to a 12-month 5.8% pace in April from 5.5% in March. Spanish producer prices fell by 1.1% on month in April and 0.5% on year.  Finnish producer prices also posted a 0.5% drop in the year to April. 

Finnish retail sales volume rose 0.4% in the year to April, and improvement from an on-year decline in the first quarter of 2013.  Polish retail sales slid 0.2% on year in April.  The Polish jobless rate eased to 14.0% in April from 14.3% in March.  Austrian industrial production was 1.7% smaller in March than a year before. 

The U.S. Treasury market will shut early today in advance of the long Memorial Day holiday weekend.  No market-moving U.S. data releases are scheduled.

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

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