Currency Policy Strains Unresolved

October 11, 2010

Talks among officials of the G-7 and broader community of nations in connection with the IMF/World Bank meetings in Washington have done little to resolve brewing currency wars.  There have been the typical pledges of cooperation and an agreement to have the IMF study the question.  But nothing concrete emerged.  U.S. Treasury Secretary Geithner escalated the complaint about a lack of sufficient forex policy flexibility in China.  The Treasury Department releases a semi-annual currency market report on Friday.  Typical of the advent period for such reports, the Chinese yuan advanced another 0.2%, bringing its rise against the dollar to 0.5% over the last five trading days and 2.2% since September 3.

Market reaction to the meetings in Washington have been muted today by holidays in the United States, Japan and Canada for Columbus Day, Health-Sports Day, and Thanksgiving Day, respectively.  The dollar is trading 0.1% softer against the yen, euro, and Swissy, and it has risen 0.1% against sterling and the Australian dollar.  The kiwi, down 0.5% against the greenback, shows a larger change.

Ten-year German bund and British gilt yields are up by three and two basis points today.  Peripheral bond spreads in the euro area are somewhat narrower.

Equities advanced by 2.9% in China, which was closed most of last week, 1.5% in Thailand, 1.2% in Hong Kong, 0.4% in Malaysia and India, and 0.3% in Australia and Singapore.  Stocks fell by 0.8% in Taiwan and 0.4% in South Korea.  In Europe, stocks are trading 0.3% higher in London, and those in Frankfurt and Paris show minor gains of 0.2%.

Industrial production jumped by a much greater-than-forecast 1.6% in Italy in August and were 12.8% above a year earlier.  This can be a volatile data series. 

In France, by contrast, industrial output, was unchanged in August and 3.2% higher than a year before.  These results fell short of expectations.  Euro area industrial output figures will be released on Wednesday.

Norway released both CPI and PPI statistics.  Consumer prices went up 0.6% in September and 1.7% on year.  Core CPI slowed to 0.9% on year from 1.4% in August.  The producer price index slid 0.3% on month but advanced 19.7% between September 2009 and September 2010.

Czech consumer prices slid 0.3% last month, but the 12-month rate of rise inched up a tenth to 2.0%.

Danish consumer prices rose 0.4% in September and by 2.6% on year.

The Turkish government revised upward projected real GDP growth to 6.8% this year and trimmed estimates for the budget deficit to 4.0% of GDP this year, 2.8% in 2011, 2.4% in 2012 and 1.6% of GDP in 2013.  Turkey recorded a TRY 3.0 billion current account deficit in August.

Mortgage loans in Australia increased 1.0% in August after a 1.8% advance in July.  These back-to-back rises were proceeded by a streak of declines and suggest that the housing market has stabilized in response to paused monetary tightening.  The Reserve Bank of Australia had increased the Official Cash Rate six times between October 2009 and May 2010 and to 4.5% from 3.0%.  There have been no further rate increases since May, however.

U.S. and Canadian markets are on holiday today. Dudley and Yellen of the Fed will be speaking publicly.  So will Trichet of the ECB.

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

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