Japan Services Activity Down In July

Demand for services in Japan fell in July (slightly).The tertiary index, which is a gauge of money households and businesses spend on services ranging from phone calls to leisure, slipped 0.5 percent from June, according to data from the Trade Ministry released this morning. This data point is significant since services these days form such an important part of domestic consumption (Actually, honest answer, I don't really know how much. This is something I should calculate. Maybe when the next quarterly GDP numbers are released). Anyway here's the relevant chart:



This really confirms my general impression that Japan peaked domestically at the turn of the year. Since that time the general trend has been slightly down. With exports now under threat from the global slowdown this trend should become a little more pronounced as we go into the winter. Also the July reading is significant, since it forms part of Q3. It also accompanies data we have seen about machine orders being slightly down. If this pattern continues a second quarter of negative growth now looks very much on the cards.

German ZEW Economic Sentiment Index September

German investor sentiment on the outlook for the German economy worsened more than expected in September on worries about market turmoil and the strong euro.

The Mannheim-based ZEW economic research institute said its economic sentiment indicator, based on a monthly survey of 304 analysts and institutional investors, fell to -18.1 this month from -6.9 in August. The figure was the lowest since December 2006.



This report adds to growing concern that the collapse of the U.S. housing market will only push further down growth which was already slowing in some of Europe's core economies, Germany and Italy in particular. The European Commission on Sept. 11 lowered its forecast for German growth this year to 2.4 percent from 2.5 percent, adding that the fallout from defaults in the U.S. on mortgages aimed at people with a poor credit history had ``tilted the balance of risks to the downside.''

The Leu Continues To Come Under Pressure

Romania's leu fell to a more than six-month low against the euro this morning. The leu in fact declined for a fifth consecutive day, extending losses after recording the biggest daily decline in almost two weeks on Friday. The leu fell 0.9 percent to 3.3905 per euro by 11:08 a.m. this morning in Bucharest, its lowest since March 5. This was a decline from 3.3599 late last Friday.

The leu is now the worst-performing of 26 emerging market currencies against the euro since mid-August.


Here is the one day chart I prepared for last Friday:




and here is the one month chart (again as of last Friday).



Basically the Romanian currency seems to be the weak chink that currency market operators have found in the emerging market defence system, and I feel that the decline in risk appetite will start to really show its teeth here. In this sense the issue is longer term and structural as my colleague Claus Vistesen explains here.

But there are short term "movers" of the situation. One of these is undoubtedly the climate, and the dependence of the Romanian economy on agriculture. In this sense it is significant - despite the fact that the most pressing problem the country is likely to experience in the mid term is an acute labour shortage as the effects of longer term low fertility and large scale out migration of working age population really start to bite - that Romania's unemployment rate rose in August as a drought that damaged most of the country's crops reduced the need for manual laborers to collect the harvest. The proportion of the workforce out of work rose to 3.9 percent, from 3.8 percent in July, according to data released by the National Labor Agency today.

A drought damaged four million of the six million hectares of crops planted in Romania this year, completely destroying at least one million hectares and reducing the need for workers.


The other big downward driver is the current account deficit. The Romanian central bank has said that the current account gap swelled to 8.97 billion euros in July, from 7.81 billion in June.

Let's All Head South!

Following my last post on the way the construction market in some of the European "housing boom" economies - the UK, Ireland, Greece, Spain (these are really the important ones) - may now be "maxed out" by the change in lending conditions and the lack of demand from first time buyers, I couldn't help noticing this:

CRH Plc, the world's second-biggest maker of building materials, is in talks to buy Cemex SAB's U.S. concrete plants, pipe-making unit and cement division for as much as $4.5 billion to increase revenue from the Americas.

Cemex, North America's largest cement producer, is selling 39 concrete and aggregate plants in Florida and Arizona to gain U.S. Justice Department approval for its $14.2 billion purchase of Rinker Group Ltd. CRH, based in Dublin, could also acquire the Mexican company's Pacific Northwest materials division.

For me it is obvious that the high value construction and financial services sectors based in Madrid would be quickly heading south to Latin America to get in on the growth spurt that may be about to come in some key economies there - Chile, Argentina, Brazil, Columbia (perhaps) - but I had hardly expected Dublin to be moving so fast. No wonder they call Ireland the Celtic Tiger!