Thursday-Friday Roundup

February 11, 2011

The big news of the final two days of this week came from Cairo today, the announced abdication of President Hosni Mubarak after 30 years of dictatorial rule and three weeks of relentless mass protests calling for him to leave.  The unrest had generated flight to capital, boosting Treasuries, the dollar and oil prices. 

Egyptian uncertainty is far from over.  For now the military is in command.  Protestors have demanded elections as soon as possible, but the dates of such remains unclear.  Still to be determined is whether the military, those wanting secular self-government or those preferring the rule of Islamic law emerge on top, and of course what happens now to U.S.-Egyptian relations and elsewhere in the middle east.  A milestone in an ongoing saga has been reached, nothing more.

The dollar is up 1.2% against the yen and 1.0% against the euro on balance since Wednesday’s closing in New York.  Ten-year Treasury yields are off two basis points, and their premium relative to German bunds has narrowed by a similar amount.  Stocks are minimally changed, and West Texas Intermediate oil is somewhat above $86 per barrel.

Central banks in Britain, the Philippines, and South Korea left their respective key interest rates unchanged at 0.5%, 6.0% and 2.75%.  The first two of those results met market expectations, while analysts were surprised that the Bank of Korea failed to implement another 25-bp rate hike.

China reopened after a week-long Lunar New Year celebration.  The yuan is worth 6.5915 per dollar, marginally less than two weeks ago after drifting higher during the period when the government was on the sidelines. 

A number of governments released December industrial production figures.  French and Italian output rose 0.3% on month each and by a similar 5.8% and 5.7% from the final month of 2009.  British output advanced 0.5% and 3.6% on year, while Swedish production fell 2.1% from November but was 10% greater than a year earlier. 

British PPI figures underscored the U.K. inflation problem.   The producer output index jumped 1.0% and accelerated to a 12-month 4.8% rate of increase in January from 4.1%.  Core PPI-O increased 0.7% and 3.2% on year.  The producer input price index shot up 1.7% on month and 13.4% on year.  An estimate by the National Institute of Economic and Social Research indicated that GDP in November-January likely dipped 0.1%, suggesting a pronounced deterioration of momentum last month when valued added taxes went up 2.5 percentage points.

The United States had some encouraging economic news to report:  a 32K decline to 383K in new jobless insurance claims, a $49.8 billion fiscal deficit last month that was more than 25% smaller than feared, stronger inventory building in December than assumed, and an 11.6% on-year rise in wholesale turnover during December.  A further rise in the trade deficit to $40.6 billion was caused by higher prices and volume for imported oil.  Most disturbing, Governor Warsh of the Federal Reserve resigned, suggesting dissension at the central bank over QE2, which Chairman Bernanke again defended in testimony that gave no hint of second thoughts about cutting such short before the $600 billion program is completed in June.

Australia’s January labor statistics were decent.  The jobless rate held at 5.0%, and 24K more workers found jobs.  Remarks by Reserve Bank Governor Stevens, however, that called current monetary policy settings “sensible” dampened expectations of a near-term policy tightening and depressed the Australian dollar somewhat.

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

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