Monday Morning Cheat Sheet: 3 Stories Moving Markets

A series of weaker-than-expected economic indicators out of China weighed on global markets on Monday. Japan’s Nikkei fell 1.55 percent, the Hang Seng fell 1.43 percent in Hong Kong, and Australia’s S&P/ASX 200 fell 0.91 percent.

The numbers out of China hit European stocks as well. At about mid-day trading, Germany’s DAX was off 0.92 percent, London’s FTSE was off 1.13 percent, and the STOXX 50 index was off 0.75 percent.

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U.S. stock futures at at 8:00 a.m.: DJIA: -0.29%, S&P 500: -0.40%, NASDAQ: -0.37%.

Here are three stories to keep an eye on:

1) China Cools Down in Q1: Data released on Monday morning by the Chinese government suggests that the nation’s economy didn’t grow as fast in the first quarter of 2013 as analysts were expecting. To be clear, the China was guiding more mild growth for itself than the analyst consensus. First-quarter gross domestic product increased 1.6 percent on the quarter and 7.7 percent on the year. This compares against expectations for 8.0 percent year-over-year growth.

This downside surprise is likely the result of lower-than-expected industrial production, which grew 8.9 percent year over year instead of the 10 percent anticipated. All categories advanced, with automobiles up 12.4 percent. Retail sales figures for March, also released on Monday, showed a 12.6 percent year-over-year increase, which was just 0.2 points shy of expectations. This increase includes a 5.5 percent increase in automobile sales, which is slower than the rate for the first few months of the year. Sales of communications equipment increased 16 percent, a faster rate than in February…

2) Gold Tanks, Despite Economic Uncertainty: Gold for June delivery fell nearly $100 to $1,407.60 per ounce during European trading hours on Monday. Last week, gold closed down 4.7 percent, having dipped as low as $1,384.60 per ounce at ounce point. All told, gold has lost bout 20 percent since record highs around $1,888.70 in August of 2011.

Monday’s sell-off is a bit unexpected given the still-uncertain European debt situation (see below) and the new data out of China, but fits a broader trend that began with the new year that suggests after years and years, gold is finally in a bear market. The metal has already lost favor with a number of analysts, whose opinions — for better or worse — seem to be reflected in the price movement.

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3) European Bailouts: Who’s Next? The short answer to the question, according to mounting speculation among curious observers, is: Slovenia. The nation — wedged between Austria, Hungary, and Croatia at the north-eastern edge of Italy — fell into the crosshairs last week when its government failed to raise its target of 100 million euros ($131 million) at a debt sale. Selling just 56 million euros ($73.3 million) worth of six-month and one-year bonds sent yields on the nation’s dollar-denominated benchmark bond up to levels only seen at other bailout-recipient nations, or about 6.17 percent.

For some context, the Organisation for Economic Cooperation and Development recently published an economic survey of Slovenia that painted a rather grim picture. Main findings include: “The economy is in a deep recession,” “Slovenia is facing a severe banking crisis,” and “Potential growth has fallen significantly since the onset of the crisis.” The International Monetary Fund expects that the country will have to borrow as much as 3 billion euros ($3.93 billion) this year in order to repay maturing debt, assist banks, and finance its budget.

Slovenia will test the international perception of its economy on April 17, when it plans to sell 500 million euros ($655.2 million) in 18-month Treasury bills. If the debt sale goes poorly and fails to attract international interest, what is currently an orange alert could slide into the red. As feared, the recent bailout of Cyprus — and the subsequent losses to depositors and senior bondholders — has created a nervous environment.

EU Non-Performing Loans Percent to GDP

Source: IMF (2013), Financial Soundness Indicators, International Monetary Fund, March, http://fsi.imf.org and Bank of Slovenia.

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