Strong Euroland and Japanese Industrial Production Weakens Dollar

March 12, 2010

The dollar has lost 0.8% against the Swiss franc, 0.7% relative to the euro, 0.6% against the pound, 0.4% versus the Australian and New Zealand dollars, 0.2% against the Canadian dollar and even 0.1% against the yen.

Speculation that the Bank of Japan is poised to increase special liquidity support introduced three months ago sent the Nikkei up another 0.8%.  Stocks also rose by 1.0% in Thailand, 0.8% in Pakistan, and 0.4% in South Korea.  The German Dax, Paris Cac and British Ftse are trading 0.7%, 0.6% and 0.4% higher.

The 10-year JGB yield firmed 3 basis points to 1.35%.  The yields on the British gilt and German bund is off 1 basis point and steady, respectively.

Oil and gold prices rose 0.6% and 0.8% to $82.64 per barrel and $1117.50 per ounce.

Euro area industrial production leaped 1.7% in January, the biggest monthly advance since August 1989, and December was revised from a drop of 1.7% reported a month ago to an increase of 0.6% instead.  Output was 1.4% greater than in January 2009 instead of 1.6% lower as forecast.  Industrial production was also 2.5% above the 4Q average level, having increased at an annualized rate of 7.9% last quarter and 3.0% in 3Q09.  These very strong increases mask a divergence within the bloc.  Production posted monthly increases of 2.6% in Italy, 1.6% in Germany and 1.5% in France but dropped by 2.2% in Finland, 1.1% in Spain and 0.6% in Greece.

Japanese industrial production in January was revised to show a 2.7% increase from the 2.5% rise reported originally.  Output was 18.5% higher than a year earlier.  The inventories/shipments ratio increased 1.1% after slumping 4.8% in December and was still 27.5% lower than in January 2009.  Capacity usage rose 3.9% and 26.1% from a year earlier, while capacity eased 0.2% and was 0.2% higher than in January 2009.

Canada reported better-than-expected February labor statistics, showing a one-tenth decline in unemployment to 8.2% and a further 20.9K advance in jobs, with the number of full-time workers jumping by 60.2K.

German wholesale prices firmed 0.1% in February and 2.1% in on-year terms.  Both increases were smaller than forecast.  The WPI plunged 7.0% on average in 2009 after climbing 5.4% in 2008.

New Zealand reported disappointing non-auto retail sales, which increased just 0.3% in January instead of the expected 0.7%.  House sales in February were 3.8% lower than a year earlier, highlighting another aspect of what the central bank governor has recently called a “sluggish recovery.”  It certainly is sluggish compared to neighboring Australia’s upturn.

Industrial production in India was 16.7% higher in January than a year earlier.  Such had risen 17.6% in the year to December.

Italian labor costs firmed 0.6% last quarter and were 3.4% higher than in 4Q08.

Greek unemployment eased to 10.2% in December.  The Greek fiscal problems have not stopped, but such are no longer exerting a big influence on the euro.  France posted a EUR 3.4 billion current account deficit in January.  Finland’s EUR 55 million trade deficit in January was about a third as much as forecast.  The on-month drop in Spanish consumer prices last month was revised to 0.2%.  The CPI was only 0.8% greater than a year earlier, and core inflation was merely 0.1%.

Late yesterday came news that Peru’s central bank left its key interest rate at 1.25%.  This had been expected, but an accompanying statement suggests an increase before too long.

The S&P rating agency upgraded Indonesia’s credit rating.

A Chinese official made confrontational remarks about U.S. commercial trade policy.

Hong Kong industrial output was 4.9% lower than a year earlier in 4Q09, down from an 8.6% decline in the year to the third quarter of 2009.

The Czech Republic reported a much bigger-than-expected CZK 15.6 billion current account surplus for January.

Bank of Canada Governor Carney admonished against reading policy implications into the central bank’s latest policy statement, which unlike earlier ones did not attach a bias to downside inflation risks.

U.S. retail sales, business inventories, and the U. Michigan consumer confidence index will be released today.

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


2 Responses to “Strong Euroland and Japanese Industrial Production Weakens Dollar”

  1. Jimbo says:

    Isn’t the dollar going to gain strength mostly because Euroland and Japan are worsening faster than the U.S.? To me it looks like in a worsening situation, next year should see the dollar stronger since when all is going bad, the dollar is the shelter for all worriers around the world.

  2. larrygreenberg says:

    Actually the global economy and the G-3 economies are presently improving after a severe recession. I suggest, too, that you take a look at my post, Pause in the Dollar, of March 12 in which there is a table comparing the recent trends in industrial production in the U.S. unfavorably to those of Euroland and Japan. Investors think the U.S. outperforms other advanced economies all of the time, but that’s not the case. Finally, another myth is that relatively strong growth correlates positively with strengthening currency values. Most of the time, the United States is on top or near the top of the growth leader board, yet the dollar has lost massive ground since the late 1960s against other key currencies(including a drop from 0.8228 per euro in October 2000 to $1.6038 in July 2008).