Greek Elections, Not French, Throw A Curve Ball
Saturday, May 12, 2012
The election in France developed as expected, with the outcome showing that incumbents are always kicked out during rough economic times regardless of ideology. Meanwhile the Greek election results showed strong gains for extreme left and extreme right parties, an indication of desperation and additional trouble ahead, especially if the extreme political wings register further gains in what appears to be the need for a new election in June.
in addition, Spain’s nationalization of Bankia is indicative of what’s to come, while the Spanish have told the markets until now that there wasn’t the need for fresh capital. The misrepresentation of facts will continue until there’s literally no money in the bank.
U.S. Economics: Consumer borrowing increased in March by the most in more than a decade on growing demand for educational financing. Credit rose by $21.4 billion, the biggest gain since November 2001, to $2.54 trillion, and the advance was paced by a $16.2 billion jump in non-revolving debt, and, yes, those student loans keep on giving.
Wholesale inventories rose to $480.4 billion, up 0.3% from the revised February level and 8.4% higher than a year ago. Durable goods were up 1.0% from last month and were up 10.8% from a year ago. Inventories of non-durable goods were down 0.6% from February, but were up 5.1% from last March. Inventories of petroleum and petroleum products were down 5.9% from last month and inventories of paper and paper products were down 2.0%. In short, there’s a buildup that must be worked off.
The trade deficit widened more than forecasts, or up 14% to $51.8 billion, as demand for crude oil, computers, automobiles and televisions propelled imports to a record. A 5.2% jump in imports, the biggest in more than a year, buried the 2.9% gain in exports, which also reached a record. But the increase in the value of imports reflected higher fuel prices and a bounce back in shipments from China following the week-long Lunar New Year celebrations. It appears that global demand is growing, but most countries around the world are focused on lowering interest rates, which runs counter to the expansion argument.
Rates on fixed-rate mortgages hit record lows, with the 30-year fixed-rate mortgage averaging 3.83%, and questioning the strength of housing demand. The good news is that the U.S. government posted its first monthly budget surplus since September 2008, and the $59 billion surplus came as tax receipts increased and spending on education, Medicare and defense civil programs fell in the month.
Inflation is still subdued, and the BLS stated that “the April PPI decrease in the finished goods index is attributable to a 1.4% decline in prices for finished energy goods. By contrast, the indexes for finished goods less foods and energy and for finished consumer foods both rose 0.2 percent.” Consumer sentiment, as measured by UoM, increased to 77.8, the highest level since January 2008.
Global Economics: Japan posted a current account surplus for a second straight month in March as exports rose for the first time in six months, while China’s exports and imports rose less than estimated in April, adding pressure on the government to ease policies to spur expansion. Overseas shipments rose 4.9% from a year earlier, and import growth of 0.3% was extremely short of forecasts for a 10.9% increase. The trade surplus was $18.4 billion, almost double estimates of $9.9 billion.
China’s industrial production grew the least since 2009, new yuan loans missed estimates and inflation was below target. China’s retail sales in April gained a weaker 14.1% from a year earlier, as compared with March’s 15.2% increase. Fixed-asset investment rose 20.2% in the first four months of the year, the slowest growth rate since 2005 data.
The Bank of England refrained from further quantitative-easing, leaving the size of its bond-buying program unchanged, and the bank left the key lending rate at a record low 0.5%. The size of its asset-buying program, which is the centerpiece of the bank’s quantitative- easing strategy, was kept at 325 billion pounds ($523.2 billion).
Market Trends: Short-term stock market trends turned negative from neutral once again, while long-term trends are still neutral. The dollar continues to hold its ground, and the euro, faced with the “new” uncertainty that never left, closed below $1.30, which it had held in view of the European disease that the bureaucrats will not acknowledge. Even with the BOJ’s quantitative easing of its own, the yen continues its slow march higher. Both short-term and long-term oil — WTI and Brent — turned decisively negative, leading a commodity slump that delivered lower prices not seen in months. Gold had tried positive ground last week, but it succumbed to the increasing realization the precious metals are nothing more than commodities, and closed at $1,584, with only a 1% gain for the year. Silver closed at $28.89, the lowest price since January 10, 2012. The 10-Year Treasury rate decreased further to 1.84% from 1.93%, and Treasuries continue their positive climb supported by an increasing call for safety, among other factors.