Equities Hit by New European Concerns

July 3, 2013

Portugal’s foreign minister, and the head of the center-right coalition partner, resigned.  The root cause is an old theme, mounting intolerance to relentless and unworkable austerity.  Portuguese and Greek sovereign debt under new pressure. 

The political mess in Egypt where PM Morsi refuses to step down also is promoting a risk-off atmosphere.

Share prices slumped 3.2% in Indonesia, 2.5% in Hong Kong, 1.6% in South Korea, 1.4% in Singapore, 1.3% in Taiwan, 0.8% in China, and 0.3% in Japan.  In Europe, stocks have sold off 3.1% in Spain, 2.1% in Italy, 1.8% in France, 1.7% in Germany and 1.6% in Britain.

Ten-year British gilts and German bunds are down five and four basis points.  The 10-year JGB edged a basis point lower.

Oil jumped 1.4% and through the $100 threshold to $100.95 per barrel on unrest in the Mid-East.  Gold is 0.1% firmer at $1244.90 per ounce.

Service-sector purchasing manager survey results are not as good as hoped.

The Australian dollar slipped below 91 U.S. cents, losing 0.7% overnight on balance.  The greenback fell 0.9% against the yen, 0.6% versus sterling and 0.1% relative to the Swiss franc and kiwi.  The U.S. currency is unchanged against the loonie and yuan and has risen 0.1% versus the euro.

Japan’s service-sector and composite purchasing manager surveys indicate slower growth in June than May but faster growth in the second quarter than 1Q.  The services PMI dropped 2.7 points to 52.1, while the composite PMI fell by 1.8 points to 52.3. 

China’s HSBC-compiled composite PMI moved below the 50 threshold of neutrality to 49.8 despite a 0.1-point uptick in services to 51.3.  New business was weaker than in May.

India’s composite PMI fell by 1.1 points to 50.9, indicating only marginal growth and much less than back in January when the reading was 56.3.  The services PMI in India dropped by 1.9 points to 51.7 in June.

In Russia, the composite PMI decreased to a stagnant 50.1 reading from 51.0 in May 52.4 in April, 53.4 in March and 54.9 in February.  The Russian services purchasing managers index was below 50 (at 48.8) for the first time in nearly three years.

Australia’s service-sector PMI of 41.5 in June after 40.6 in May and 44.1 in April continued to indicate a significant degree of contraction. 

Euroland’s services PMI score in June was revised downward to 48.3 from a preliminary reading of 48.6.  Even so, that was the highest reading since January and followed 47.2 in May and a 2013 low of 46.4 in in March.  The problem remains a lack of a clear growth driver in the common currency area.  Germany’s reading of 50.4 was pretty stagnant, while Spain, France and Italy had sub-50 scores of 47.8, 47.2, and 45.8.  The Irish services PMI of 54.9 was above May’s 52.7 reading but weaker than the scores in December, January, and April.

Euroland’s composite PMI in June was revised down to 48.7 from 48.9 but was at a 15-month high, nonetheless.  The individual composite scores were 53.2 in Ireland, a 5-month high; 50.4 in Germany, a 3-month high; 48.1 in Spain, a 24-month high; 47.4 in France, a 10-month high; and 47.0 in Italy, a 21-month high.

The British service-sector PMI improved to a 27-month high of 56.9 in June, up from 54.9 in May and 52.9.  Along with decent manufacturing and construction PMIs reported earlier, there’s no chance that the Bank of England extends quantitative easing tomorrow.  Shop prices, according to the British Retail Consortium, were 0.2% softer in June than a year earlier.

The Swedish Riksbank left its main repo interest rate unchanged at 2.0% and did not modify the predicted future path of that rate. 

Retail sales in the euro area recovered much more strongly in May than assumed, jumping 1.0% on month following dips of 0.3% in February and 0.2% in both March and April.  Sales volume was still 0.1% softer than in May 2012, and the April-May level of sales was just 0.1% higher than the 1Q average.

On-year growth in Hungarian retail sales slowed to 2.5% in May from 3.4% in April.

A 0.1% uptick in Australian retail sales constituted the best result in 3 months.  Sales were 2.3% above the May 2012 level.  Australia recorded a A$ 670 million trade surplus in May, nearly four times bigger than in April as exports went up 4.0% versus a 1.5% on-month rise in imports.  New home sales in Australia climbed 1.6% in May, down from 3.9% in April. 

Turkish CPI and PPI inflation accelerated sharply last month.  Consumer prices were 8.3% higher than a year earlier, a 9-month high.  Producer prices posted a 12-month increase of 5.2%, 3 percentage points more than in May.

The U.S. and Canada will be reporting trade data today.  Other U.S. data arriving today are the service-sector PMI, the ADP estimate of private growth in employment, and weekly jobless insurance claims.  The U.S. Treasury market will shut early ahead of tomorrow’s Independence Day holiday.  Poland’s central bank will announce its latest interest rate policy decision.  The Bank of England and ECB announce their decisions tomorrow.

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

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