Currency Thoughts

Very Busy Day

February 15, 2011

Central bank decisions have been announced in Japan, Sweden and Turkey.  Euroland fourth-quarter GDP figures were weaker than forecast.  The United States released retail sales, import prices and international capital flows, while Britain reported a 4.0% on-year rate of CPI inflation, most since November 2008 and twice the targeted pace.

The dollar is mixed, falling 0.7% against sterling, 0.3% versus the euro, 0.2% relative to the Canadian dollar and 0.1% against the yuan but rising 0.6% against the yen, 0.4% versus the kiwi, and 0.2% against the Australian dollar.  Dollar/Swiss is unchanged.

Stocks rose 0.7% in Malaysia and Indonesia, 0.4% in Taiwan and India, and 0.2% in Japan.  Equities fell 1.0% in Hong Kong, 0.8% in Singapore, and 0.1% in Australia and China.  European stocks are narrowly mixed, and U.S. equities fell after the opening bell.

Ten-year British gilt and German bund yields firmed three and one basis points.  JGBs and Treasuries are steady.

Oil and gold prices firmed 0.6% and 0.5% to $85.31 per barrel and $1372.30 per ounce.

The Bank of Japan retained a virtual zero interest rate policy but upgraded the economic assessment to “emerging from a deceleration phase.”

The Swedish Riksbank as expected implemented another 25-basis point rise in its repo rate to 1.50%.  Two of six policymakers dissented in favor of keeping the benchmark steady at 1.25%.

Turkey’s central bank since mid-December had been cutting interest rates and raising reserve requirements but decided to do nothing further at this time pending clarification of the impact of that policy mix.  The key interest rate remains 6.25%.

Unseasonably bad weather in Euroland constrained GDP growth to 0.3% last quarter, same as in 3Q.  Analysts expected 0.4% or 0.5%.  On-year growth edged up a tenth to 2.0%.  Among individual members of the European Economic and Monetary Union, economic growth results were as follows:

• German GDP went up 0.4%, down from gains of 0.6% in 1Q, 2.2% in 2Q, and 0.7% in 3Q.  GDP was 4.0% greater in 4Q10 than in 4Q09.
• French GDP rose 0.4% on quarter and 1.5% on year.  Domestic demand and net exports augmented the quarterly growth rate by 0.7 percentage points (ppts) and 0.5 ppts, while inventories subtracted 0.8 ppts.
• Italian GDP edged just 0.1% higher, down from gains of 0.5% in 2Q and 0.3% in 3Q.  On-year growth of 1.3% compared to 1.2% in the year to 3Q.
• Greek GDP plunged 1.4% on quarter and 6.6% on year.  It’s hard to slash the budget deficit ratio when the denominator is diminishing so rapidly.
• Spanish GDP, which had been unchanged in 3Q, firmed just 0.2% versus 3Q and 0.6% from a year earlier.
• Portuguese GDP fell 0.3% in 4Q and was 1.2% higher than in 4Q09.
• Dutch GDP growth accelerated to 0.6% from 0.1% in 3Q.  On-year growth was 2.4%.

The 12-month rate of increase in British consumer prices rose to 4.0% from 3.7% in December even though January saw a small monthly uptick of 0.1%.  Core inflation edged up to 3.0% from 2.9%, and retail price inflation climbed to 5.1% from 4.8%.  Bank of England Governor King blamed prior sterling depreciation, the January increase in value added taxes, and elevated commodity prices.

Chinese consumer price inflation rose to 4.9% in January, falling short of whisper numbers of as much as 5.5%.  PPI inflation of 6.6% was up from 5.9% in December and the highest since May 2010.

Minutes from the Reserve Bank of Australia’s Policy Board meeting earlier this month said the monetary policy stance by late 2010 had become “mildly restrictive” yet appropriate in light of the medium-term Australian economic outlook and limited spare capacity.  Subdued consumer spending and lower-than-expected inflation last quarter allow some time to keep policy on hold.

The December rise in Japanese industrial production was revised up by 0.2 ppts to 3.3%.  The 12-month advance was 4.9%, and December’s level was 2.5% greater than the fourth-quarter average.  Capacity usage increased 3.0% on month and 6.2% on year in December, while capacity fell by 0.2% on month.

Euroland posted a EUR 2.3 billion seasonally adjusted trade deficit in December after a shortfall of EUR 3.2 billion in November.  Exports slid 0.4% after no change in November.  The surplus in 2010 was EUR 0.7 billion after EUR 16.6 billion in 2009.

Czech GDP rose 0.5% on quarter and 2.9% on year in 4Q.  Hungarian GDP went up 0.2% versus 3Q and 1.8% on year.  Romanian GDP increased 0.1% on quarter but slid 0.5% from the final quarter of 2009.  Czech producer prices jumped 1.4% on month and accelerated to a 12-month increase of 4.6% in January.  Hungarian consumer prices increased 0.7% on month and 4.0% on year in January. 

Spanish consumer prices fell 0.7% on month in January and slowed to a 12-month increase of 4.0% from 4.7% in December.  Denmark’s PPI jumped 1.5% on month and by 7.7% on year last month.  Italy’s trade deficit widened to EUR 3.2 billion in December from EUR 3.0 billion in November.

According to the British Department of Communities and Local Government, house price inflation slowed to 3.8% in December from 4.0% in November.  A bigger slowdown had been expected.

The Turkish jobless rate edged lower in November but remained in double digits at 11.0%.

The ZEW Institute published its February measures of investor sentiment.  In the case of Germany, the expectations component of 15.7 although above January’s 15.4 was less than forecast, while the current situation improved to 85.2 from 82.8.  The euro area index had an expectations reading of 29.5 in February, up 4.1 points.  The current situation also improved.

The New York Fed’s manufacturing index rose to 15.43 from 11.92 in January.

U.S. retail sales increased 0.3% in January, less than forecast, and by 7.8% from a year earlier.  Non-auto sales also rose 0.3% on month and 6.2% on year.

U.S. import prices shot up 1.5% on month and rose 5.3% on year, with energy again a major inflationary impulse.

U.S. Treasury capital flow data, the so-called TIC, revealed a smaller net long-term capital inflow of $65.9 billion in December after $85.1 billion in November.  But the broadest flow, which includes short-term transactions, widened to $48.2 billion from $35.6 billion.

U.S. business inventories rose 1.1% in December and were 8.0% greater than a year earlier. 

The U.S. National Institute of Home Builders housing index remained at +16 in February.

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

Tags: BOJ, Euroland GDP

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