Tuesday’s Optimism Lingering

February 2, 2011

Many signs that investors are more hopeful.  Strong U.S. auto sales in January help.  So does the possibility as mooted of a an agreement at the summit of EU leaders later in the week for an expanded rescue fund for troubled peripheral governments.  So does the fact that demonstrations in Egypt remain peaceful.

  • Stocks rose 1.9% in Thailand, 1.8% in Japan and Hong Kong, 1.1% in Indonesia, 0.9% in Australia, and 0.8% in Singapore and Malaysia.  The British Ftse has gained 0.9%.
  • Ten-year German bund and British gilt yields were steady over night, and the JGB went up just one basis point.  Peripheral spreads versus Germany narrowed.  Portugal’s spread, for example, dipped below 190 basis points after the government sold six- and twelve-month bills at a significantly lower interest rate and a much larger bid:cover ratio.
  • Oil prices are at $91.05 per barrel, up just 0.3%, while gold eased 0.3% to $1337.00 per ounce.
  • The dollar remains soft, another sign of risk appetite.  The U.S. currency lost 0.4% against sterling and 0.2% versus the Canadian dollar.  After yesterday’s quantum drop to as low as 1.3844 per euro, it has recouped just 0.1%.  The dollar also gained 0.3% against the Swiss franc and 0.2% versus Australian dollar.  The kiwi is steady.

Yemen is the latest country to be rattled politically by what began in Tunisia.  The world’s eyes remain fixed on Cairo.  Mubarak has offered to step down after September elections.  Will protestors accept that?  Probably not, but demonstrations remain peaceful.

Chinese markets will be closed for about a week to observe the Lunar New Year holiday, so a surprise 0.6% appreciation of the yuan doesn’t appear to reflect a marked acceleration in its rate of appreciation.

It’s Groundhog’s Day in the United States, where a huge part of the country is being battered by blizzard conditions and/or an ice storm.  The smart groundhogs will stay in their holes and not even attempt to see their shadows.

Speaking of ice, Sedlabanki implemented a 15th reduction of Iceland’s key seven-day lending rate to 4.25%.  However, this slice of 25 basis points was much smaller than the prior fourteen and was accompanied by a statement that claims, “the direction of future policy moves has become more uncertain.”  Since an initial cut of 100 basis points in March 2009, the key rate has dropped 1,375 basis points from a peak of 18%.

Britain’s construction purchasing managers index improved sharply to a four-month high of 53.7 in January from 49.1 in December and an average 4Q10 reading of 50.8.  The British Retail Consortium reported that shop price inflation was 2.1% in December, up from 2.0% in November.

Producer prices in Euroland jumped 0.8% on month in December, the most since July 2008, thanks to a 2.2% leap in energy and a 0.5% rise in prices for intermediate goods.  In year-over-year terms, the PPI was up 5.3% in December compared to 4.5% in November and 3.6% in August.  Such had declined 2.9% in the year to December 2009 and risen just 1.2% in the year to December 2008.

Romanian producer prices advanced 1.2% in December and accelerated to a 9.6% 12-month rate of rise from 8.1% in November.

New home sales in Australia fell 0.6% in December on top of a 0.2% drop the month before.

Kamezaki of the Bank of Japan spoke optimistically about a return soon to more normal economic growth and predicted that deflation would end by next fiscal year.  The central bank released data on Japan’s monetary base, which recorded reduced on-year growth of 5.5% in January after 7.0% in 4Q10 and 5.8% in 3Q10.

Malaysia’s trade surplus widened 7.8% on month to MYR 9.7 billion in December. 

Spanish unemployment jumped 3.2% to 4.23 million workers in January.  Spain’s jobless rate exceeds 20%.  Norwegian joblessness, by comparison, was just 3.6% in both the third and final quarters of 2010.

The U.S. ADP report on January private-sector employment will be released at 13:15 GMT.  Sometimes it gives an early hint of how the Labor Department’s monthly data will compare to expectations.  All to often, however, the ADP figures mislead market players and analysts.  The ECB meets tomorrow.  See my preview of the ECB press conference which starts Thursday at 13:30 GMT.

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

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