Weaker Dollar at Start of December

December 1, 2010

The dollar, which had posted strong gains in November, fell 1.0% against the euro, 0.7% versus the Canadian and Australian dollars, 0.6% against the kiwi, and 0.3% relative to sterling.  Asian demand ignited the move, which then drew in short-covering dollar sales.  The dollar climbed 0.4% against the yen and 0.1% versus the yuan and Swiss franc.

Risk aversion settled back in the face of some stronger-than-expected purchasing manager index readings and a report in the FT that ECB President Trichet may be inclined to beef up purchases of peripheral bonds.

In the Pacific Rim, equities advanced 2.5% in Indonesia, 1.9% in Sri Lanka, 1.8% in Taiwan, 1.2% in Singapore and the Philippines, 1.3% in Thailand and South Korea, 1.1% in Hong Kong and 0.5% in Japan.  Chinese stocks failed to join in the rally; better-than-forecast Chinese manufacturing PMI scores raise the chance of more monetary restraint there.  Meanwhile, a third rate hike by the central bank in Thailand caught analysts leaning toward no change.

But stocks in Europe have extended the better tone, with gains so far of 1.8% in the German Dax, 1.5% in the British Ftse and 1.0% in the Paris Cac.

Bond yields and commodity prices posted big advances.

  • The yields on 10-year German bunds and British gilts increased by nine and ten basis points.  The 10-year JGB, in contrast, fell by 4 bps.
  • Oil prices rose 1.6% to $85.42 per barrel.  Gold is again flirting with the $1400 level after a 0.8% leap to $1397.30 per ounce.

The Bank of Thailand raised its policy rate by 25 basis points to 2.0%, citing the likelihood of future upward pressure on inflation.  Current Thai inflation was unchanged at 2.8% in November according to a report out today.  Core inflation was only 1.1%, but GDP will this year record a gain of about 8%.

Australian real GDP rose 0.2% last quarter, slowing the on-year growth pace to 2.7% from 3.3%.  Analysts were expecting GDP to rise 0.5%, but net exports exerted a big drag of 0.4 percentage points than the positive 0.3 ppt contribution from personal consumption.

Many manufacturing purchasing manager readings for November were reported overnight.  Scores above 50 imply expansion and vice versa.

  • The official Chinese index advanced by another half-point to 55.2, showing further acceleration from 49.4 in July.  The HSBC PMI mirrored the official index, rising to 55.3 in November from 54.8 in October and 52.9 in September.
  • India recorded a PMI score of 58.4 after 57.2 in October and 55.1 in September.
  • Britain’s factory PMI jumped unexpectedly to 58.0 from 55.4 in October.  A 10-month low of 53.5 had occurred in September.
  • Euroland’s 55.3 reading was near the 55.5 preliminary indication and constitutes a four-month high.  The index was at 53.7 in September and 54.6 in October.
  • France’s 57.9 score is a 10-year high and almost matched Germany’s performance.  Orders posted the best score since August 2000.
  • The German PMI returned to 58.1 from 56.6 in October and 55.1 in September, with the best orders reading since July.  Germany’s long-term PMI average score of 52.0 is well below recent readings.
  • The Dutch PMI climbed to 56.5 from 55.4 in October and 52.9 in September.
  • Italy scored a 52.0, down from 53.0 in October and a nine-month low.  Jobs fell for a fourth straight month.
  • Spain’s 50 reading lies at the intersection of expansion and contraction.  Production actually fell below 50 for the first time since January.  Weak domestic demand outweighed better exports.  Like many other economies, Spain is grappling with intensifying input price inflation.
  • The Irish PMI of 51.2, though up by 0.3 points, shows only scant upward momentum.
  • The Greek PMI of 43.9 signifies a continuing deep recession in manufacturing.
  • Eastern Europe is managing to stay better insulated from the EMU debt problems than one might expect.  The Czech PMI improved to 57.3 from 57.2, while the Polish index rose to 55.9 from 55.6.  Hungary’s PMI jumped to 54.9 from 51.5.
  • The Swiss PMI of 61.8 exceeded October’s 59.2 reading and market expectations of 59.4.
  • Sweden’s PMI of 61.3, although off a half-point, has exceeded 60 for at least five straight times.
  • The Norwegian PMI increased to 56.0, a 33-month high, from 54.4 in October, 53.1 in September, and 49.3 in August.
  • Denmark’s index settled back to 51.5 after spiking to 54.8 in October from 50.6 in September.
  • Russia’s reading was 51.1, down from 51.8 in October and similar to September’s 51.2.
  • Turkey’s 56.4 was the strongest reading in six months.
  • South Africa registered a PMI reading of 52.9 after 49.8 in October and 48.6 in September.
  • Taiwan’s index was 51.7 after three straight sub-50 readings.
  • South Korea’s index climbed 3.5 points to 50.2, the first above-50 reading since August.

German retail sales in October bounced upward 2.3% after falling 1.8% in the previous month, but the 12-month change in sales volume swung into the red with a minus 0.7% result.  Sales in the third quarter had risen 1.2% at an annualized rate.

Britain’s widely followed Nationwide house price index dropped 0.3% on month in November, trimming the on-year increase to 0.4% from 1.4% in October.

Sweden recorded a SEK 50.3 billion current account surplus in the third quarter, down from SEK 55.4 billion in 2Q and marginally smaller than the SEK 51.0 billion surplus in the year-earlier quarter.  Norway’s current account surplus narrowed to NOK 64 billion last quarter from NOK 73 billion in 2Q, NOK 86 billion in 1Q and NOK 92 billion in the final quarter of 2009.

Japan reported very weak motor vehicle sales in November.  India’s trade deficit widened 6.7% on month in October as exports contracted by 0.3%.  South Korean consumer prices edged 0.1% higher in November, cutting the 12-month increase to 3.3%.  On-year core CPI stood at 1.8%. 

South Africa’s trade surplus narrowed 1.3% to ZAR 3.21 billion in October.

Scheduled U.S. data today include the manufacturing purchasing managers survey, a final estimate for productivity and unit labor costs last quarter, the Beige book, motor vehicle sales, construction spending and the ADP estimate of private employment growth.  Several Fed officials (Yellen, Fisher, and Tarullo) speak publicly today.

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

New Zealand commodity prices were 23.7% higher than a year earlier in November.  Australian commodity prices posted a 44.4% on-year increase.

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