Jobs reports say ad numbers on the wane: Job ads, business conditions and confidence all fell in April, according to two separate reports released this morning.  The monthly National Australia Bank’s survey of business conditions and confidence (released a day earlier because of the federal Budget), showed a fall for both to levels closer to long-term averages.   While the ANZ job ads report for April revealed a fall of 1.2%, after March’s 1.8% rise.  The ANZ said the total number of jobs advertised fell to 160,660, with internet job ads falling 1.3% and newspaper ads 0.7% in the month. despite fall job ads are around 15% above the level of April 2009.  ”The modest decline in job advertisements in April is not surprising in the wake of two successive rate hikes from the RBA,” ANZ chief economist Warren Hogan said in a statement.   The NAB’s business confidence index fell to 13 from 16 in April and business conditions fell to 8 in April from 13 in March.   Both reports confirm the trend in building approvals and retail sales, that conditions in the wider economy have become easier in the past couple of months. .

Don’t forget China: the usual monthly economic data from China will be out tomorrow, with attention on the consumer and wholesale price inflation, house prices, urban investment and bank lending. Analysts will be looking for signs that Beijing’s tightening measures in the property and finance sectors have had an impact. House prices rose 11.7% in the year to March (Australia’s 20% in the capital cities); the CPI was 2.4% in the year to March and the producer price index was up 5.9%. China recorded its first trade deficit for six years in March. Lending was down as the cuts, ordered by the central government via The People’s Bank of China, bit and the tightening of lending criteria for property was stepped up.

America’s bank deaths go on: Another four US banks were closed on Friday, bringing the bank failures in the year to date to 68. All were small operations, with one in Florida (the 10th in that state this year), another in Minnesota, a third in Arizona and  the fourth in Los Angeles.

Why systemic risk hasn’t gone away: Some sobering figures on the exposure of American banks to Europe. According to the latest figures from the Bank of International Settlements, US banks have $US3.6 trillion in exposure to European banks. That includes more than a $1 trillion in loans to France and Germany, and nearly $US200 billion to Spain. Germany and France aren’t normally a concern, but their banks and other lenders have loans to Greece, Spain, Italy, Portugal and each other. In Germany, Hypo Real Estate has about €78 billion of loans to Greece, Italy, Spain and Portugal. Remember it was rescued by the German government two years ago with about €102 billion in aid. Australia’s banks have a low level of lending to European banks,  here and offshore. According to figures from JPMorgan, Italy has $US126 billion in debt falling due in the next three months, Greece, Spain and Portugal a combined $US90 billion. Even with the latest support package, that $US216 billion will be a big test for markets.

It’s everywhere: America’s vast money market funds, which got into trouble after Lehman Brothers failed and had to be bailed out by the Fed, is another area of concern. Their cash reserves are invested in bank securities in the US. These funds hold an estimated $US500 billion in loans to US and other banks; all short-term, all callable and after 2008, trigger fingers are itchy and within reach for those loans to be recalled. Should US banks suffer losses on lending to Europe and be forced to take write-downs, then there could be worse ahead for these funds.

Vested Interest: German financiers do their bit … According to media reports at the weekend leading German banks, insurers and other finance groups, will put up an €8.1 billion of loans and other types of finance for Greece. That’s on top of the €110 billion from the eurozone countries and the IMF. Deutsche Bank and Commerzbank AG co-ordinated the credit line, along with DZ Bank AG, HVB Group, Allianz and Munich Re (the related insurers). The banks and insurers will provide €4.8 billion in financing to replace Greek government bonds by purchasing new bonds or providing other forms of financing and they will replace expiring credit lines worth €3.3 billion. Germany’s banks and insurers have more than €43 billion invested or in loans in Greece, to the government or to Greek companies.

Last week was … Thursday’s trading glitch made things worse, but last week was well on the way to being miserable before that happened. Most share markets worldwide went negative for the year by Friday. Nasdaq, America’s tech market, is now in correction phase (Spain, Greece and Portugal, plus China are there already). The Dow Jones average had its worst ever five trading days in May, while for the S&P, last week’s 6.4% topped a week in May 1930 as the worst week of trading on record. That was in the Depression, a timely reminder for those market bulls who’ve thought risk had gone away.

US jobs breakout ignored: Showing how much the market instability and fears about Europe had grabbed the attention of markets in the US by Friday, the April jobs report was given a passing glance, then ignored. Fear concentrates the mind wonderfully. The report was the best jobs news in four years: 290,000 new jobs last month, March’s 162,000 rise upgraded to 230,000. More than half a million new jobs in two months. The US unemployment rate jumped to 9.9% from 9.7%, because 850,000 people rejoined the ranks of those looking for work. Normally such a great bit of news would have seen US stocks rally strongly, but while there was a blip, it couldn’t last and the fears about Europe and its banks pulled shares lower for the day and week. The US dollar firmed against the euro last week, but fell against the yen. The dollar strengthened to about $US1.27 against the euro last week from more than  $US 1.50 last December. That is going to help US inflation, but not American exports.

Spain grows, finally: Meanwhile, one potential problem child in Europe, Spain, had some welcome news on Friday. The country’s central bank said the economy grew 0.1% in the March quarter (the government releases its official figure on Wednesday. If the government’s report confirms it, then Spain will have emerged from the seven successive quarters of recession, the last of the world’s major economies to do so. Unemployment remains at 20.1%. Year-on-year, the Spanish economy shrank 1.3%.

Investors bail from Europe: According to the UK funds tracker EPFR Global, investors pulled $US2 billion from European equity funds in the week to May 5. That’s the biggest fall so far. European markets are down more than 9%, or close to a $1 trillion, this year.

About time? Ratings group Moody’s Corp revealed late Friday (after trading had finished) that its credit rating group could face enforcement action from the main US market regulator, the SEC. The allegation is that in 2007 Moody’s allegedly mislead regulators in an application to remain a nationally recognised rating agency. Moody’s said the SEC is contemplating starting an administrative case and “cease-and-desist” proceedings, and that a so-called “Wells Notice” was received from the SEC on March 18. Oh, one of those. Didn’t Goldman Sachs get one of those and remain quiet for nine months? Yep, Moody’s has revealed this with alacrity compared to the Vampire Squid (aka Goldman Sachs), which failed to do so until the regulator launched civil action against it on April 16.

Peter Fray

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Peter Fray
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