Sterling Sank Sharply

March 1, 2010

Sterling opened March with a 2.5% drop against the dollar and is 6.4% weaker than on February 1.  The greenback otherwise also advanced 0.7% against the Swiss franc, 0.6% versus the euro, 0.5% relative to the yen and kiwi, 0.2% against the Canadian dollar and 0.2% against the Australian dollar.

Ten-year bund, gilt, and JGB yields rose three, seven and two basis points to start a new month.

Oil rose 0.8% to $80.26 per barrel, whereas gold settled back 0.2% to $1116.50 per ounce.

Stocks rose 2.2% in Hong Kong, 1.9% in Taiwan, 1.3% in China, 1.1% in Australia, 0.8% in Singapore and 0.5% in Japan.  Markets were closed for holidays in India, Thailand and South Korea.  In Europe, the Dax, Cac40 and Ftse are trading up by 1.2%, 0.9% and 0.3%.

Speculation continues that Germany and France are assembling aid for Greece.  The Greek PMI-mf’g slumped to 44.2 in February from 48.6 in January, confirming a double-dip recession in manufacturing.  Greek retail sales were 2.7% higher in December than a year earlier.

Several factors are weighing on the pound: a weak recovery, the risk of more quantitative monetary easing in Britain, a double-digit fiscal deficit, and the upcoming election that many fear will deprive the Conservatives of a majority and means to tackle structural problems.

Ironically, the British PMI-manufacturing index reported today was steady at January’s 15-year peak of 56.6, pointing to the best quarter since 2Q07.  Other U.K. data released this morning were the Hometrack house price index (up 0.4% in February from a year earlier), M4 growth (up 4.9% on year, down from 6.4% in December and 9.3% in November), mortgage approvals in January (48.2K after 58.2K in December and 60.0K in November) and net consumer credit (up only Gbp 0.5 billion in January).

Euroland manufacturing purchasing managers index printed at 54.2 in February (a tenth better than the preliminary indication) after 52.4 in January, 51.6 in December and 51.2 in November.  The improvement was led by Germany, France, Austria and Holland.  Spain, Ireland and Greece continue to post sub-50 scores, connoting contracting activity.

  • The German index was 57.2, up from 53.7 in January.  Production was even higher than in France.
  • The French PMI slid to 54.9 from 55.4.
  • The Dutch index was 55.2 after 54.8.
  • Italy’s PMI of 51.6 after 51.7 was the fourth reading of 50 or better in a row.
  • Spain’s index improved to 49.1 from 45.3.  Although at a 25-month high, domestic demand continued to lag.
  • Ireland’s index rose a half-point to 48.6 due to the strongest export demand since May 2006.

The unemployment rate in Euroland was 9.9% in January for a third consecutive month.  It had been at 8.5% at the start of 2009.

German import prices shot up 1.7% in January, more than twice as much as forecast, and posted an on-year gain of 1.4%.  Non-oil import prices climbed 1.1% and fell just 2.6% from a year earlier.  The state of Baden-Wuerttemberg saw consumer prices rise 0.1% in February and by 0.2% from a year earlier.

The Swiss PMI reading of 57.4 after 56.0 surpassed expectations.  Sweden’s PMI printed at a robust 61.5, two-tenths less than in January.  Swedish GDP fell 0.4% last quarter, however, and was 1.5% lower than a year earlier.  Norway’s PMI swung back below 50 with a reading of 49.4 versus 50.1 in January and 47.6 in December.  The Danish PMI showed lessening manufacturing growth with a reading of 54.0 after 56.7.  Finnish GDP was unchanged last quarter and 5.1% less than a year earlier.  Norwegian real retail sales dropped 0.4% in January and registered just a 0.2% on-year increase.

Italian GDP fell 5.0% last year.  The fiscal deficit equaled 5.3% of GDP.

Hungary’s PMI of 55.9 in February was 1.9 points greater than in January. Hungarian producer prices in January were 0.6% lower than a year earlier.  The Czech PMI-manufacturing index improved to a 23-month high of 54.3 in February from 53.1 in January and 50.8 in December.  Poland’s PMI rose to 52.4 from 51.0, surpassing its long-term average of 49.6.  Turkey’s PMI dropped 2.1 points to 50.9.  The Russian index of 50.2 after 50.8 recorded back-to-back readings of at least 50 for the first time since July 2007.

Japanese auto sales were 35% greater than a year earlier in February.

China is so big that it has two different PMI indices.  One settled back to 55.8 from 57.4, and the other fell to 52.0 from 55.8.  Taiwan’s PMI improved further to 62.5 from 61.7.  The South Korean PMI climbed to 58.2 from 55.6 and 52.8 in December.  South Korea also reported on-year export growth of 31% and a trade surplus in February of $2.33 billion.  India’s PMI increased to 58.5 in February from 57.6.

Consumer prices in Indonesia rose 3.8% in the year to February.  The core rate was 3.9%.

Australia’s PMI rose to 53.8 from 51.0 in January and 48.5, a sign that manufacturers have adapted to the three rate increases late last year.  Australia posted a big A$ 17.459 billion current account deficit last quarter.

The South African PMI jumped much more than forecast to 60.4 in February from 53.6 in January.

The United States releases its PMI reading for manufacturing later today in addition to data on personal income and spending and construction spending.  Canada reports December and fourth-quarter GDP growth as well as producer price figures.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



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