Awaiting U.S. Jobs Report

November 5, 2010

A mildly firmer dollar reflects posturing ahead of this week’s final big event, not any lessening of cynicism over U.S. dollar policy.  Nowotny of the ECB observed the obvious fact that the Fed and ECB monetary policies are becoming more divergent.

The dollar is 0.7% stronger against the kiwi and sterling and up 0.5% versus the Australian dollar.  The greenback has risen 0.4% against the euro and 0.3% against the Canadian dollar but is unchanged against the yuan and yen.  The dollar eased 0.2% relative to the Swiss franc.

Asian equities rallied after yesterday’s strong U.S. and European advances.  Stocks rose 2.9% in Japan, 2.1% in India, 1.4% in Hong Kong, and 1.2% in Australia and China.  But stocks are unchanged in Paris, London and Frankfurt.

The yields on ten-year JGBs and gilts firmed by two and one basis points.  The 10-year German bund yield is three basis points lower.

There’s been little further change in commodity prices after yesterday’s rise.  Oil is flat at $86.49 per barrel, while gold has firmed 0.1% to $1384.40 per ounce.

The Bank of Japan policy meeting merely clarified terms and conditions for the asset purchase program but did not increase its size any further.  Likewise, the target interest rate range was left at zero to 0.1%.  After meeting for just three hours over two days, the Policy Board said that Japan’s recovery seems to be pausing and that exports and industrial production had become more or less flat versus prior upward trends.  The statement said a slower pace of growth would continue “for some time” but noted that core CPI deflation is less pronounced.

The Reserve Bank of Australia released a new quarterly statement on monetary policy.  Officials project GDP growth of 3.5% in 2010 followed by 3.75-4.0% in both 2011 and 2012.  Core inflation is seen hovering in the middle of the 2-3% range until the middle of next year but then gradually firming to 3.0% by the end of 2012.  For the near term, headline inflation is likely to exceed core inflation.  This week’s 25-basis point hike of the official cash rate to 4.75% is called “modest”, “prudent” and an “early” adjustment to help “ensure that inflation remains consistent with the 2-3% medium-term target.”

The RBA Statement also called appreciation thus far in the Australian dollar “broadly consistent with increases in commodity prices and interest rate differentials” but warned that further gains could cause growth and inflation in Australia to run lower than the “central scenario.”

The volume of retail sales in the euro area slid in September by 0.2% for a second straight month and was only 1.1% greater than in September 2009.  Retail sales still managed to advance 1.7% at an annualized pace last quarter after edging up just 0.1% in the second quarter.

Greek regional and local elections on Sunday are being cast by the prime minister as a national referendum on the government’s fiscal proposals.  A snap election in December is threatened if this vote of confidence is not given now.  Opinion polls point to weak turnout, which makes the outcome uncertain.  The election has fanned concern about the debt of Euroland’s peripheral members.

German industrial orders plunged 4.0% in September, erasing a 3.5% gain in August and leaving the September level 1.6% below the 3Q average.  Orders still managed to advance 6.9% annualized last quarter, but on-year growth in orders slowed to 13.9% from 24.1% in the year to August.  In September, a 6.6% drop in foreign orders surpassed a 0.6% decline in domestic demand.

British producer output prices rose 0.6% in October, twice expectations, and 4.0% from a year earlier.  Core PPP-O inflation ticked down to 3.3% from 3.4%.  Producer input prices advanced 2.1% on month and 8.0% on year; both changes exceeded expectations.

Norwegian industrial production and factory output respectively rose 1.8% and 1.6% in September.  Industrial production climbed 1.2% in the third quarter.  Danish industrial production rose 2.4% in September after an even larger drop in August.  Hungarian and Spanish industrial output respectively rose 0.5% and fell by 1.4% in September.

Canadian employment only rose 3.0K in October versus expectations of +10K.  Part-time workers fell by 44.2K on top of a 43.7K loss in September.  Although jobs were 375.2K, or 2.2%, greater than a year earlier, the pace of climb since mid-2010 has been just 5.7K per month.  The unemployment rate remains in a flat trend, printing at 7.9% after 8.0% in September, 8.0% in August and 7.9% in July.  Wages rose 2.1% on year, down from 2.3% in August and September.

Taiwanese consumer price rose 0.6% in the year to October.  WPI inflation was 3.8%.

Still to come is the U.S. Labor Department monthly jobs report, pending U.S. home sales, and public remarks from six different Fed officials: Bernanke, Lacker, Bullard, Fissher, Plosser, and Hoenig.  Canada also releases building permits today.  North America turns back its clocks by one hour at 03:00 on Sunday, which will restore the normal time differential with Europe and will widen the spread between New York and Japan to 14 hours.

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

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