All Eyes on the Central Banks

November 4, 2010

The dollar fell by 1.6% against the kiwi, 0.7% relative to the euro, 0.6% against the Aussie dollar, 0.5% versus sterling, 0.4% against the Swiss franc, 0.3% relative to the yen and Canadian dollar, and 0.2% against the Chines yuan.  Various Chinese officials complained overnight that more quantitative easing by the Fed will be destabilizing to the global economy.

Stocks responded well in Asia and Europe to the Fed’s announcement of more quantitative easing.  Equities gained 2.2% in Japan, 2.1% in India, 1.8% in China, 1.7% in Thailand, 1.6% in Hong Kong, 0.8% in Taiwan, 0.5% in Australia and 0.3% in South Korea.  In Europe, stocks at 10:45 GMT were up 2.1% in France, 1.8% in Britain, and 1.7% in Germany.

Japanese markets reopened after a one-session holiday to a 3-basis point drop in the 10-year JGB yield, but German bunds and British gilts are 3 and 2 basis points higher.

Commodities got a big lift.  Gold and oil prices climbed 1.8% and 1.2% to $1361.80 per ounce and $85.74 per barrel.

The Fed will buy roughly $75 billion of Treasuries per month in November-through-June and will continually reassess the amount of this new round of quantitative easing as new data emerge.

The Hong Kong Monetary Authority, which moves its base rate in lock-step with the Federal funds rate, left such at 0.5%.

Bank Indonesia left its benchmark interest rate steady as expected at 6.5%, where such has been for over a year.

Australia’s service-sector purchasing managers index (PMI) rose to 50.7 in October from 45.6 in September, 47.5 in August, 46.6 in July, and 48.8 in June.  Such was the first reading above 50 — that is, to convey an expanding trend — since April.

Japan’s service-sector PMI showed an intensifying contraction with a reading of 47.2 following scores of 48.5 in September and 48.7 in August.

Euroland posted service-sector and composite PMI readings of 53.3 and 53.8 in October.  These scores were better than the flash indications but below September readings and at eight-month lows.  One concern was a move in the orders backlog component under 50, signifying contraction.

The French composite PMI fell to 54.9 in October from 58.1 in September and 59.5 in July.  Germany’s composite index was 56.0, up from 54.7 in September.

The French services index dropped to 54.8 from 58.2, while Germany’s services PMI hit a two-month high of 56.0 after 54.9 in September and 57.2 in August.

Outside of Germany and France, Euroland’s service sector showed weakness or contraction.

  • Spain’s services PMI was 46.5, a greater rate of contraction than in September (47.9) or August (49.2).
  • Italy’s index slid to 51.0 from 51.3.
  • Ireland’s PMI recovered to 51.0 from 48.8 in September but was well below 52.9 in August and 55.7 in July.

Because clocks turned back in Europe last weekend but the U.S. doesn’t go onto standard time until next weekend, the key Bank of England and ECB decisions will be reported an hour later than usual in the United States, that is at 08:00 and 08:45 Eastern Daylight Savings Time.  See my previews of these meetings.  The Czech Central Bank also announces its latest rate decision today, while the Bank of Japan began a two-day meeting that will culminate in a decision to be reported tonight.

British new car registrations were 22.2% lower than a year earlier in October.  Such had dropped 8.9% in September and still show a 4.8% on-year increase for January-October.  U.K. shop price inflation accelerated to 2.2% in October from 1.9% in September according to British Retail Consortium data.  The Halifax index of British house prices increased 1.8% on month in October, reversing about half of September’s 3.6% decline, but its on-year pace of rise slowed further to 1.2% from 2.6% in September, 4.6% in August and 6.9% last May.

Dutch consumer prices edged up 0.1% in October and held steady at 1.6% in on-year terms.  Swiss consumer prices rose 0.5% last month but slowed on a 12-month basis to 0.2% from 0.3% in the year to September and 0.8% in the year to October 2009.  Romanian wage earnings were 1.4% lower in September than a year before.

Euro area producer prices advanced 0.3% in September and accelerated to a 12-month climb of 4.2% from 3.6% in August.  The energy component of the index also rose 0.3% on month but was 9.4% greater than a year before.  Non-energy PPI inflation was only 2.5% year-over-year in the latest month.  PPI inflation last quarter was 2.9% annualized, down from 7.0% in 2Q and 4.5% in 1Q10.

Australia’s goods and services trade surplus fell back to AUD 1.76 billion in September from AUD 2.446 billion in August, as exports slid 1.5% while imports rose 1.4%.  The volume of Australian retail sales firmed 0.3% in September, same as August’s increase, and was 3.8% greater than a year earlier.  New Zealand’s jobless rate fell to 6.4% last quarter from 6.9% in the second quarter of 2010.

India reported an on-year 12.9% increase of food wholesale prices in the latest week and a 15.4% advance in the overall primary articles WPI index.  The Reserve Banks of India and Australia each raised interest rates earlier this week.

Scheduled U.S. data today include quarterly productivity and unit labor costs and weekly jobless insurance claims.  Canada’s IVEY-PMI index arrives today also.  Main items for Friday are the BOJ policy announcement, the U.S. Labor Department monthly jobs report, and German industrial orders.

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

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