New Developments Abroad: Euroland Producer Prices Up Record 7.1% in Year to May

July 2, 2008

The U.S. dollar is mixed with gains of 0.5% against sterling and the yen and of 0.2% against the Swiss franc, but losses of 0.5% against the Aussie dollar, 0.4% against the euro and 0.1% against the Canadian dollar.

The Nikkei’s 1.3% drop was its 10th consecutive losing session, the longest such down-streak in 43 years.  South Korean equities tumbled 2.6% on signs that the Bank of Korea will tighten policy to contain inflation, which is at a ten-year peak.  Stocks also fell 1.8% in Hong Kong and by 0.9% in Australia.  But in Europe, the Ftse (+1.0%), Cac (+0.6%) and Dax (+0.7%) are higher.

The yield on 10-year JGB’s slid 1.5 basis points to 1.655%.  But European long-term rates rose following the release of Euroland PPI data.

Gold prices dropped 1.0% to $934.80/ounce, whereas oil rebounded 0.2% to $141.21/barrel.

Producer prices in Euroland leaped 1.2% from April and by a record 7.1% in the year to May.  On-year PPI inflation had been 6.2% in April and 4.4% at the end of 2007.  Energy prices rose 4.1% m/m and 18.2% in the latest month.

Chinese consumer sentiment climbed in May to 94.3 from a 94.0 reading in April.

Australian data were mixed.  Biggest surprise was a 0.7% rise of retail sales in May, where only a 0.2% increase had been predicted.  Building approvals fell 6.5% in May, more than reversing a 5.4% rise in April.  Job vacancies dropped 3.7% in June and 8.2% from a year earlier.  These figures do not change the message from Australia’s central bank that policy will remain on hold for the time being.

Growth in Japan’s monetary base swung back into the black with a 0.4% on-year rise in June after -0.9% in May and -2.8% in April.

Real engineering orders in Germany fell 12% y/y in May but still posted positive growth of 4% in January-May.

Britain’s construction PMI sank to 38.8 in June, lowest in this 11-year-long data series, from 43.9 in May.  Housing equity withdrawals hit a 7-year low.

ECB President Trichet made hawkish remarks about the rise in inflation.  The central bank will undoubtedly raise its refinancing rate tomorrow by 25 basis points to 4.25%, and the press conference afterwards is expected to stress the risks to price stability.

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