Stocks Up and Dollar Down

January 18, 2011

With the U.S. market reopening after a three-day holiday weekend, the dollar lost 1.0% against the euro, 0.7% against sterling, 0.6% versus the Swiss franc, 0.5% relative to the Australian dollar, 0.3% against the Canadian dollar, 0.2% versus the yen and yuan, and 0.1% against the kiwi.

Stocks are up by 1.1% in Great Britain and Germany and by 0.9% in France.  Chinese stocks rebounded sharply (+3.3%) following Monday’s swoon. Equities rose 1.1% in India, 0.8% in Australia, 0.7% in Taiwan, 0.6% in Sri Lanka, 0.4% in Indonesia, and 0.3% in Singapore.

Ten-year sovereign bond yields advanced by five basis points in Germany, four bps in the U.K., and one basis point in Japan.

Oil prices are steady but firm at $91.51 per barrel, while gold prices increased 0.6% to $1369.20 per ounce.

European finance ministers continue to meet, and despite lessening hopes for a major increase in the size of the rescue fund, short-term debt auctions in Spain and Belgium cleared at lower yields.

British consumer price data produced another shocker.  The total inflation rate accelerated more than forecast to 3.7% in December and has risen 10% over the last three years, that is 3.2% per annum between December 2007 and December 2010.  The target is 2.0%, and the view by Bank of England officials that the spike is caused by special factors and will be temporary is losing credibility.  The on-month 1.0% advance of consumer prices was the largest since at least 1996.  Retail price inflation edged up a tenth to 4.8% from 4.7%.  Core CPI increased 2.9% over the past twelve months, three-tenths more than forecast.  Food price inflation of 6.1% was at a 17-month high.

While U.K. goods and service prices accelerate, there was more evidence of sputtering home price inflation.  The Department of Communities and Local Government’s house price index edged 0.1% lower on month and fell to a 4.0% 12-month rate of rise in November from 5.5% in October and 11.0% last May.  Analysts were predicting an uptick to 5.9%. 

One piece of good British news, however, came from the Nationwide gauge of consumer confidence, which improved to +53 in December from +45 in November.  Analysts were anticipating a reading of 51.  The RICs house price balance improved in December but remained depressed at minus 39% after minus 44% in November and minus 49% in October.

The ZEW index of investor sentiment toward Germany printed stronger than expected at 15.4 in January after 4.3 in December, 1.8 in November, and minus 7.2 in October.  Once upon a time, investors were prepared to see the German economy tail off late in 2010.  The current situation component printed at 82.8 after 82.6 in December and 44.3 in August.  The ZEW Institutes also conducts a survey of investor sentiment toward the whole euro area, whose expectations component improved to 25.4 in January from 15.5 in December and 1.8 in October.  The current situation component weakened 1.5 points, however, to minus 6.1.

Japanese November industrial production growth of 1.0% on month was left unchanged.  Output in October-November combined was 2.8% less than in 3Q, and officials retained the assessment that “industrial production has weakened.”  One hopeful sign was an 8.2% on-month decline in the inventory ratio.  Capacity usage thus rose 1.6% on month and 7.2% on year.  Capacity was 1.9% greater than a year earlier.

From Australia comes news that the TD-MI inflation gauge increased 0.2% in December, easing to a 12-month increase of 3.8% from 3.9% in November.  The government’s CPI and PPI figures are a quarterly data series.

Hong Kong unemployment averaged 4.0% last quarter, down from 4.1% in September-November.  Thailand posted a $1.3 billion trade surplus in December, exceeding expectations as exports advanced 18.8% from a year earlier.  Peruvian GDP rose 10% on year in November.

The Italian current account deficit near doubled on month to EUR 5.0 billion in November.

The Bank of Canada announces its interest rate decision at 14:00 GMT today.  See my preview.  A rate hike is unlikely but not impossible.

Scheduled U.S. data today are monthly international capital flows from the Treasury Department, the National Association of Home Builders index, and weekly chain store sales.  Chinese President Hu begins a four-day visit to the United States amid chillier, more contentious relations between the two superpowers.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.

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