Markets: Investors Ignore Economic News

The global stockmarket continues to have a bad case of multiple personality, worrying about Greece and the eurozone imploding one day, and then reversing those fears the next.

Or it frets about slowing economic growth, especially in China and emerging markets (which are essentially holding up global economic growth at the moment) and ignores news reports and data to the contrary.

Yesterday was a perfect example: a holdover of fear from Friday night's sell-down in Europe and the US was given a kick along with media reports that Greece would miss deficit reduction targets in a budget that cut spending by 8 billion euros.

The market ignored news that Japan's quarterly Tankan business survey was positive, as forecast, and that China's two surveys of manufacturing were much better than expected.

But investor attention is being held firmly by the affairs in Europe and the continuing lack of leadership in trying to get a workable solution to the huge debt problems.

The news saw markets in Asia down sharply in gloomy trading yesterday which continued into Europe and the US.

Chinese markets are on holiday all this week, so the pressure from the China bears is being felt in Hong Kong.

Much of the selling in Chinese shares is in and around finance and property groups with rising fears about losses and possible defaults among developers.

The deficit for this year will be 8.5% of Greece's gross domestic product, well short of a target of 7.6%, because of the severity of the continuing recession.

The deficit will be reduced to 6.8% of GDP next year, but just short of the mark of 6.5% of GDP (which hopefully won't shrink by more than then 5.5% contraction forecast this year, thereby widening the gap).

While the Greek parliament is due to vote on the package shortly, a more pressing deadline is the discussions overnight on whether Greece should receive another 8 billion euros under the 2010 bailout.

Representatives of the EU, the IMF and the European Central Bank are in Athens assessing the budget and whether it meets previous assurances from the Greek government.

Greek Finance Minister Evangelos Venizelos held talks with the trio in Athens after the new budget was approved by the cabinet on Sunday.

Venizelos was due to attend an emergency meeting of eurozone finance ministers who will assess whether Greece has done enough to receive the next 8 billion euros ($US10.7 billion) payment from its current bailout package, the sixth payment under the first bailout.

The betting is that the money will be approved, thereby easing tensions in markets until later this month. But that assumes the new budget will be approved by the Parliament.

But a problem for the Greek government will be the sacking or pay cuts for 30,000 public servants, which is certain to further upset an already disconsolate electorate just looking for a reason for major protests or worse.

In Tokyo the market focused on Greece and ignored the Bank of Japan's latest quarterly Tankan business sentiment survey which should another improvement in the September quarter.

The headline index covering large manufacturers rose to +2 from -9 in the June quarter, about what forecasters had estimated.

A positive number in the tankan's main index indicates more firms are positive about conditions than are negative.

The turn upward came as Japanese production for August rose, as did car sales in September and inflation, although retail sales fell last month.

But the headline result for medium- and small-sized manufacturers remained negative for the quarter, at -3 and -11, respectively.

Large non-manufacturers also moved into positive territory, registering +1 from -5, though medium non-manufacturers were at -8 and small non-manufacturers at -19.

In the April-June survey, large, medium and small non-manufacturers had yielded survey results of -5, -17, and -26, so there is a clear improvement.

Large manufacturers expected the next Tankan sentiment index result to improve further to +4, while medium-sized companies said their index would rise slightly to -2. However, small manufacturers said their index would move one point lower to -12.

But the improvement seen for the 4th quarter is not dramatic and supports the suggestion that Japan's rebound from the March 11 disasters is running out of puff, thanks to the weakening world economy and the poor political leadership in Japan which is impacting confidence.

But the most interesting news for the global economy came in China with the better than expected surveys of manufacturing from HSBC/Markit and the official China Federation of Logistics and Purchasing.

The latter was issued on Saturday and showed a rise to 51.2 last month, which is mildly expansive, because of a rise in export orders. Other sub-indexes in the survey suggested that activity was more cautious. But it was the highest the index has been for four months.

The official survey was up slightly from the 50.9 reading for August.

And the HSBC survey out late Friday showed a small contraction reading of 49.9, up from the 49.4 reading in the early flash estimate and steady on the reading for August.

The HSBC survey commentary said that was constrained by "lacklustre demand from both domestic and external clients" (the Official PMI showed a rise in export orders).

But the reading - which stayed steady for two months - showed signs of stabilising, which could help ease fears about a "sharp slowdown", according to comments from HSBC chief economist Qu Hongbin.

"Despite the global slowdown, we expect China's economic growth to hold up at around 8.5-9 per cent in the coming years," Qu said in the statement.

That's a point the China bears all ignore.

But then they are focused now on bad debts and the property sector, a favourite of theirs for a year or so, but one which has seen to a big sell-off in shares in Hong Kong and Shanghai in the past 10 days.

The rising level of fear around the world was best summed up in a speech in Tokyo by a senior official from the IMF.

Deputy Managing Director Zhu Min said downside risks to the IMF's global economic growth projections have increased "as of late."

The IMF two weeks ago cut its forecasts, predicting global growth will slow to about 4% this year and next year from 5% in 2010.

He said that a further slowdown in the US economy and a deterioration in the euro-zone sovereign debt crisis pose potential risks to global economic growth.

"One of these risks is that already weak economic activity in the US loses further momentum. Another is that the crisis in the euro area runs beyond the control of policymakers, despite the strong policy response agreed by euro-area leaders in July 2011," he said in a speech in Tokyo.