Dollar and Yen Sharply Higher

December 17, 2009

The dollar shows similar advances of 1.3% against the Australian dollar, 1.2% against sterling, the kiwi, and euro, and 1.0% relative to the Swiss franc and Canadian dollar.  The greenback is only 0.1% firmer against the yen, however.  Lots of short dollar positions getting stopped out.  FOMC statement seen as mostly dollar-supportive.  Senate Banking Committee vote on Bernanke reconfirmation due later today.  Greek debt concerns continue to hurt the euro as S&P follows Fitch’s lead and cuts Greek debt rating to BBB+ with the threat of a further downgrade.

Equities are mostly weaker. The Dax and Paris Cac are trading 0.7% lower, and the Ftse is off 0.9%.  The Nikkei closed just 0.1% lower, but stocks fell 1.2% in Hong Kong, 2.3% in China and 1.0% in South Korea.

The ten-year bund yield slid 2 basis points.  The Greek yield is up over 5 bps.  In Britain, which has the worst budget prognosis in the G-7, gilt yields are elevated and did not fall.  The ten-year JGB is unchanged, too, but very low at 1.26%.

Oil prices fell 0.8% to $72.10 per barrel. Gold dropped 1.2% to $1122.40 per troy ounce.

Britain reported an unexpected 0.3% drop in November real retail sales, the worst result in a half-year.  Sales rose 3.1% on year, down from a 3.7% increase in October from a year earlier.  Analysts had expected sales to advance 0.5% on the month.  The CBI retail survey produced an unchanged reading of 13, which also was weaker than forecast.  A perception has formed that U.S. GDP will expand faster than European GDP.  Data like these reinforce that view.

The Bank of England released results from its quarterly survey of inflation perceptions.  Expected CPI inflation in the coming twelve months was 2.4%, same as in the previous two surveys. 

Indeed, construction in Euroland fell another 0.6% in October and by 7.7% from a year earlier.  French and Spanish construction were 5.3% and 11.7% lower than their October 2008 levels, and German construction suffered the sharpest monthly drop (2.4%).  Overall Euroland construction was 1.2% below the 3Q mean in October after tumbling 10.8% at an annualized rate in the third quarter.

The ECB reportedly is thinking of tightening transparency requirements on collateral used to borrow from the central bank. 

Italian unemployment firmed three tenths to 7.8% last quarter, highest since 3Q05.  The Dutch jobless rate rose to 5.3% in November from 5.2% in October.  Finnish producer prices increased 0.6% last month but were 5.6% lower than a year earlier.  Greek unemployment rose four-tenths to 9.3% in 3Q09.

Swedish November unemployment of 8.0% was down from 8.1% in October and below market forecasts.  The Swiss ZEW expectations index retreated to 54.0 in December from a score of 56.4 in November.  Norwegian unemployment remained low at 2.7% in December and met expectations.

The revised Japanese index of leading economic indicators was 89.4, 0.3 less than the preliminary figure.  The diffusion indices for the leading, coincident, and lagging indices each had a value of 100 in November.  That hadn’t happened in the same month since at least 1980.

China’s central bank governor expects the dollar to depreciate further because of the U.S. deficits and warned about the continuing fragility of global financial markets.  Hong Kong unemployment of 5.1% in November was a bit lower than anticipated.  Canada’s central bank governor said people need to prepare for a rise of interest rates to more normal levels.

New Zealand business confidence remained optimistic with a positive reading in December but to a lesser extent at 38.5 after 43.4 in November.  Consumer confidence also stayed above the optimism break even line of 100 but softened to 116.9 in the fourth quarter from 120.3 in the third.

South African producer prices firmed 0.8% in November and fell just 1.2% from a year earlier.  These were higher results than analysts predicted, but the overall picture with CPI inflation in its target range continues to support the possibility of further central bank rate cuts.

The Hong Kong Monetary Authority, whose interest rate policy shadows the Fed in order to enforce the Hong Kong dollar’s peg to the greenback, announced an unchanged key interest rate of 0.5%, 25 bps above the Fed funds target.

Scheduled U.S. data include the Philly Fed index, the index of leading economic indicators, and weekly jobless claims.  Canada reports monthly CPI and international securities transactions, and Turkey’s central bank is holding a meeting that is not expected to change its key 6.5% interest rate.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.

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