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Prospects daily: Global market sell-off continues amid renewed concern over Greek debt crisis

Global Macroeconomics Team's picture

Important developments today:

1.  Global market sell-off continues amid renewed concern over Greek debt crisis

2.  Manufacturing activity in New York grows at slower pace in May

3.  Japanese machinery orders up for first in three months

 

Global market sell-off continues amid renewed concern over Greek debt crisis. As concerns about the euro-zone debt situation continued to weigh on investor sentiment, global equities declined for a third day, the euro erased earlier gains, and oil fell below $70/bbl. World stock markets, measured by MSCI World Index, slid 1.1% to their lowest level in more than a week, while emerging-market equities declined the most in six days, with the MSCI Emerging Market Index losing 2% today (led by a 5.1% tumble by Chinese shares). Meanwhile, the euro dropped 0.3% after it hit lowest levels in more than four years against the dollar in early trading today. Oil prices fell as well, sinking to below $70 a barrel for the first time in three months. And in credit markets, the cost of insuring against default on the government debt of Greece and Portugal increased once more, with CDS spreads widening by 38.5 basis points (bps) and 37 bps, respectively.

 

Manufacturing activity in New York grows at slower pace in May. The Federal Reserve Bank of New York’s index of general economic activity fell sharply from 31.9 in April to 19.1 in May, as the pace of the rebound in manufacturing activity began to settle into a more sustainable rate of growth. Any index reading over zero indicates positive growth, and the April reading was the second-highest level recorded in four years.Manufacturing activity in New York grows at slower pace in May. The Federal Reserve Bank of New York’s index of general economic activity fell sharply from 31.9 in April to 19.1 in May, as the pace of the rebound in manufacturing activity began to settle into a more sustainable rate of growth. Any index reading over zero indicates positive growth, and the April reading was the second-highest level recorded in four years.

Last week’s report on U.S.-wide industrial production from the Department of Commerce showed output increasing 0.8% (m/m) in April following a slow first quarter. While the Institute of Supply Management’s index of manufacturing activity increased to the highest level in almost 6 years. Despite the recent slowdown in New York manufacturing activity, industrial output growth is expected to remain strong, and even accelerate, with the recovery in consumer spending and employment conditions.

   

Source: Ministry of Economy, Trade and Industry (METI)

 

Japanese machinery orders up for first in three months. After a spate of declines during the first months on the year, grounded in uncertainty about the economic outlook for Japan, and particularly for corporate investment, private machinery orders jumped 5.4% from February (m/m), when they declined 3.8%. Despite the earlier slack, orders growth for the first quarter of 2010 moved to 41% (saar) from 36 % during the final quarter of 2004, in turn lifting industrial production to annualized gains of 30% from 26% over the period.

Two elements are driving the upturn in orders: a rise in corporate profitability grounded in earlier success in exporting to East Asia in late 2009; and hopes for a revival of trade from its current easing trend, as demand in the United States and in emerging markets outside of China revives. “The recovery in corporate profits is becoming clearer, so companies may gradually increase spending,” notes Junko Nishioka of RBS Securities in Tokyo. “Even though the pace of gains in investment may be slower than in earlier recoveries, it’s a positive sign that the economy is heading for stable growth.”

 

Among emerging markets:

In South Asia, Pakistan’s foreign direct investment inflows plunged 44.7% to $1.77 billion in the first ten months of the fiscal year that started July 1st, according to Central Bank data. Last fiscal year, FDI dropped to $3.72 billion from $5.4 billion in the previous 12 months.