Economic Recovery Losing Momentum Precious Metals Gain Ground

Thursday, June 24, 2010

CPB: World Trade Flows Fell 1.7% In April

LONDON (Dow Jones)--World trade volumes fell in April for the first time since January, an indication that the economic recovery may be losing momentum.

Figures released by the Netherlands Bureau for Economic Policy Analysis, also known as the CPB, Thursday showed trade volumes fell 1.7% in April from the month earlier, having risen 4.0% in March.

"Import volumes decreased worldwide in April, with the notable exception of Japanese imports--quite the opposite of last month's pattern," the CPB said. "On the export side, growth was remarkably high in...Japan, while Central and Eastern Europe and Latin America continue to perform well also."

The CPB's figures are closely watched by policy makers, including a number of central banks because they provide the earliest available measure of global trade.

World trade flows plummeted in the final months of 2008 and the early months of 2009, declining at the sharpest rate since the Great Depression. Flows began to level out in the second quarter of last year, and rose in the second half of the year.

The decline in April means trade flows are now 6% below the all-time peak reached in April 2008, and are up 19% from their recent low in May 2009.

In the three months to the end of April, trade flows rose 4.9% on the three months to the end of January.

European shares saw their declines accelerate at the close of trading Thursday after the U.S. Federal Reserve highlighted the region's debt woes as it provided a less upbeat outlook on growth.

"A reassessment of yesterday's poor U.S. housing numbers and general debt and deficit worries [have] gained the upper hand as far as investor sentiment is concerned," said RBC Capital Markets.

Federal Reserve policymakers said late Wednesday that the European debt crisis was negatively impacting the U.S. recovery as they kept interest rates on hold at ultra-low levels and signaled rates are likely to say low for some time.

In a statement at the end of its two-day meeting, policy makers downgraded their outlook for the U.S. economy, saying that the recovery was "proceeding"--not strengthening, as they had said in April.

European banks, which are big holders of European government debt declined Thursday, with BNP Paribas shares down 5% and Santander shares down 3.8%.

The focus on Europe's debt woes put Greece back in the frame and the cost of insuring Greek sovereign debt against default hit a fresh record high on Thursday.

Greek stocks were the worst performers by a long way, with the Greek ASE Composite Index down 3.7% at 1,469.

US stocks drop on worries over retail earnings, and financial reform. U.S. stocks declined Thursday as weak earnings and forecasts from retailers weighed, along with final negotiations for the financial overhaul bill.

Demand for U.S. durable-good orders fell, pushed down by civilian aircraft in May, casting a shadow on an otherwise positive report.

Oil futures were slightly weaker amid lingering concern about the U.S. economy's recovery after disappointing U.S. economic and oil-inventory data.

The Dow's financial components were also among its top decliners, with J.P. Morgan Chase off 2% and Bank of America down 1.6%, as U.S. House and Senate lawmakers sought to reach agreement Thursday on the final pieces of legislation that is expected to tighten oversight of the financial industry more than many had expected.

On Thursday, lawmakers agreed on new capital requirements that will give large banks five years to stop treating trust-preferred securities as Tier 1 capital, a key measure of a bank's strength.

The Nasdaq Composite declined 1.2% to 2227. The Standard & Poor's 500-stock index slipped 1.1% to 1080, with its consumer-discretionary and financial sectors leading the drop.

U.S. economic data was mixed. Weekly jobless claims fell more than expected, and there was a smaller-than-feared drop in durable-goods orders. However, manufacturing activity in the Federal Reserve Bank of Kansas City's district slowed in June. Of greater worry, producers grew more cautious about the future and employment turned negative again, according to data released by the bank Thursday.

The manufacturing data added to investors' worries a day after the Federal Reserve's policy-making body kept its key interest rate near zero, as expected, but cast its policy statement with more downbeat language. "Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad," namely in Europe, the central bank said in its Wednesday statement.

The euro edged up to $1.2318 recently, reversing earlier declines. The U.S. Dollar Index, reflecting the U.S. currency against a basket of six others, was flat. Treasurys rose, pushing the yield on the 10-year note down to 3.08%. Crude-oil futures fell briefly below $76 a barrel while gold futures advanced.

Precious metals continue to edge up as economic worries impact investors opinion of world market data. Thursday's gold, silver and platinum were moving in tandem with the dollar's decline. Spot gold was trading at $1247, silver $18.65, platinum $1559/troy ounce.

G-20 Protesters preparing major rallies as world leaders meet this Saturday. Canada plays host to both the G-8 and G-20 groups of leading industrialized economies this weekend.

Leaders of the world's biggest economies are expected to begin arriving in Toronto over the next few days. Canada's primary goal at the G-20 summit to held here this weekend is finding the "delicate balance" that leads to stable and sustainable global economic growth, Finance Minister Jim Flaherty said Thursday.

Toronto stocks were lower at midday, led by banks and energy sectors. Worries over the European sovereign debt crisis and the U.S. financial overhaul bill kept investors at bay. Overall, eight of Toronto's 10 sector indexes were lower.

The US can 'no longer drive global growth'. US Treasury Secretary Timothy Geithner, speaking ahead of a G20 meeting this weekend, said the US and Europe "have much more in common than we have differences". The world "cannot depend as much on the US as it did in the past". He also played down any differences in policy between the US and Europe regarding deficit reduction, according to the BBC.

The financial sector was off 1.1%, led by Royal Bank of Canada, down 53 Canadian cents to C$53.22. Toronto-Dominion Bank had fallen 0.94 to 71.69 and Bank of Montreal had declined 1.28 to 60.48.

News out of Europe didn't help. The cost of insuring Greek sovereign debt against default hit a record high Thursday, as fears about forced selling of Greek government bonds and the fate of the European economy weighed on peripheral euro-zone bond markets. Debt-rater Fitch Ratings also said the Greek economy remains at risk of staying weak for an extended period of time.

French Unemployed +0.8% In May To 2.7M. The number of people classified as unemployed in France continued to rise slightly in May, showing the French job market has yet to recover from the global economic downturn.

The number of jobless people in France actively seeking work, rose by 22,600, or 0.8%, in May, to 2.7 million, figures from the French State employment agency Pole d'Emploi and jobs statistics department Dares show. On an annual basis, joblessness was up 7.1%.

The May increase continues a general trend upward in joblessness over the past year and a half, with the government warning that the trend won't start reversing until sometime later in 2010.

In an interview, the German chancellor rebuffed Obama's call for Germans to aid the global recovery by spending more and relying less on exports, even as she warned that Europe's own financial crisis is far from over.