American markets ended up shrugging off JP Morgan’s (JPM, quote) surprise announcement of a $2 billion trading loss, trading roughly flat on the day. Elsewhere around the world, other than more poor Chinese data, markets were relatively quiet compared to the heavy volume of news over the past few weeks pertaining to Europe.
The Chinese economy received a small piece of good news on Friday with the release of April’s CPI numbers indicating that inflation had slowed to just 3.4%. However, this moderation has been outweighed by disappointing data in most other categories. In addition to mediocre trade data released earlier in the week, Friday saw figures for retail sales, investment, and industrial production, all of which were underwhelming. These numbers were apparently poor enough for UBS to downgrade their 2012 Chinese GDP predictions from 8.5% growth to 8.2%. Traders and investors in FXI (quote) should pay particular attention to the ETF’s performance next week for indications that this is either a short-term hiccup or perhaps the impetus for a longer-term sell-off.
Rapoza delves into the prospect of Chinese banks potentially catalyzing a hard-landing to the Chinese economy. As Jim Chanos has long speculated, Chinese banks could have untold amounts of bad loans, dating back as far as the 1990′s. Bloomberg commentator Jonathan Weil speculates that a lot of the loans between Chinese banks and the government are circular. Once the international community starts to focus on the true nature of some of these loans, Chinese banks could be in trouble. Considering the FXI’s largest weighting is financials, any scandal involving Chinese financial institutions would likely see the Chinese ETF move lower.
Signs of civil unrest are sprouting in Venezuela, according to Times reporter Benedict Mander. Since Hugo Chavez has once again left the country to seek medical treatment, a power vacuum has emerged fueled by doubts over his health. Both sides of the political spectrum have voiced concerns over the others’ duplicitous intentions. The government claims that the opposition is planning to assassinate Chavez or attempt to overthrow the existing government in a coup. On the other hand, the opposition claims that the government will try to foment civil unrest in order to delay elections slated for October. Either way, it looks like things will get worse before they get better in this once-great South American country.
With concerns over a Greek (GREK, quote) exit from the euro or potentially a default increasing after their most recent Parliamentary elections, fears of the scourge of contagion on peripheral European economies has reappeared. The Economist posits that if Greece were to leave the euro, Irish and Portuguese bond yields will rise. While this is no daring prediction, Portugal and Ireland have been out of the spotlight of late, and it’s important for investors to remember that a Greek exit will likely spell short-term trouble for these two economies.