What’s the Story?

by CC March 22, 2012 8:53 am • Commentary

European markets are quite weak.  There are concerns again about Italy and Spain as Italian unions organize against Monti’s liberalization measures and Chinese concerns continue to linger in the background.  This week’s price action finally feels like buyer exhaustion.  If we get more than a 20 handle selloff soon this move could accelerate very quickly.


New U.S. claims for unemployment benefits dropped to a fresh four-year low last week, according to a government report on Thursday that offered evidence the jobs market recovery was gaining traction.

Initial claims for state unemployment  benefits fell 5,000 to a seasonally adjusted 348,000, the lowest level since February 2008, the Labor Department said.

The prior week’s figure was revised up to 353,000 from the previously reported 351,000. Economists polled by Reuters had forecast claims rising to 354,000 last week.

The four-week moving average for new claims, considered a better measure of labor market trends, declined 1,250 to 355,000.

The claims data covered the survey week for March nonfarm payrolls. Claims dropped 5,000 between the February and March survey periods, suggesting another month of solid job gains.

Employers added 227,000 jobs to their payrolls in February, taking the tally for the past three months to 734,000.


Stocks fell for a fourth day in Europe after a preliminary measure of Chinese manufacturing fell to 48.1 this month, according to HSBC Holdings Plc and Markit Economics, the lowest reading since November. A figure below 50 means that the industry contracted.

A separate release today showed manufacturing output in the euro area also shrank in March. A euro-area index based on a survey of purchasing managers in the industry dropped to 47.7 from 49 in February, London-based Markit Economics said in an initial estimate today. Economists had forecast a gain to 49.5.


There was more positive news elsewhere in the region, too, with Japan posting a trade surplus of Y32.9bn for February, which lifted shares of Japanese exporters and helped the Nikkei 225 to gain 0.4 per cent.

But the mood turned distinctly sour after the German “flash” manufacturing survey showed factory activity in Europe’s biggest economy unexpectedly contracted in March. Risk assets attracted sellers, pushing the FTSE Eurofirst 300 down 1.2 per cent, and the euro has taken it on the chin, turning an initial gain into a loss of 0.4 per cent to $1.3159.

To make matters worse, the other factor that has driven risk assets higher over recent months – fading eurozone angst – is also showing signs of becoming a problem once again.

Spreads between Italian and Spanish bonds and German Bunds have started to widen, suggesting sovereign contagion fears were dormant, not extinct. Investors are worried about the political difficulties of passing the region’s various austerity and reform packages.

Rome faces a challenge from unions while Portugal, considered the most likely to follow Greece in needing a bond restructuring, faces a big strike on Thursday in protest at the government’s fiscal policies.

Portuguese three-year notes are yielding more than 15 per cent, Italian 10-years are back at 5 per cent and Spanish benchmarks are at 5.5 per cent, the highest for two months.