Messy Politics

March 23, 2011

Peripheral bond premiums in the euro area continued to widen.  Main focus is on Portugal, where a key budget meeting sees mounting resistance to austerity moves, possible fall of the government, and then need for bailout money or default.

Allies are bickering over command responsibilities in imposing a no-fly zone over Libya.

The minority Conservative Canadian government made some budget concessions but not enough to win opposition approval, increasing the likelihood of an election in May that will also probably yield inconclusive results.

Infrastructure repairs in Japan may exceed 25 trillion yen (roughly $310 billion), and concern is mounting regarding the safety of the water supply even in Tokyo.  Whether the Kan cabinet can survive all this or become another turn of the political revolving door is debatable.

In the U.K. Bank of England minutes from a meeting on March 10 proved more dovish than expected.  Officials kicked monetary decision-making further down the road.  The 6-3 vote to retain a 0.5% Bank Rate had the same three dissenters as at the February meeting, with Weale and Dale wanting a 25-bp hike and Sentance calling for a 50-bp increase.  The majority observed rising near-term inflation expectations but cannot agree it that spike will spill over into longer-term inflation expectations.  Some still think weak growth will reduce inflation and expected inflation eventually.  The majority had been counting on those dynamics for more than a year and been wrong so far, as inflation has climbed relentlessly to 4.4% on the CPI and 5.5% on the retail price index.

The British annual budget will be presented today.  The Tory-led coalition is imposing more austerity than any other G7 government.  Contrary to the claims made by proponents for deep deficit reductions, fiscal restraint has not inspired more robust investment spending.

Sterling fell 0.4% against the dollar and 0.5% versus the euro on disappointment over the Bank of England minutes.

The dollar fell 0.4% against the yen and Swiss franc and by 0.1% relative to the Canadian, Australian and New Zealand dollars as well as the euro.  The greenback firmed 0.1% against the Chinese yuan.

The Nikkei fell 1.7%, trimming Tuesday’s strong advance.  In other stock markets, share prices rose 1.3% in China, 1.2% in India, 1.1% in Indonesia, 0.8% in Thailand and 0.7% in Singapore.  The Paris Cac, British Ftse, and German Dax show gains so far of 0.5%, 0.4%, and 0.1%.

Ten-year Japanese JGBs, British gilts, and German bund yields fell by four, three, and one basis points.

Oil and gold prices each are trading 0.3% higher at $105.30 per barrel and $1421.20 per troy ounce.

Industrial orders in the euro area only rose 0.1% in January, about a percentage point less than anticipated.  There were sharp monthly declines in France of 7.8%, Finland of 7.7%, the Netherlands of 7.1% and Italy of 1.5% to counterbalance gains of 3.7% in Germany and 3.2% in Spain.  January orders were still 2.7% greater than the 4Q average level and 20.9% greater than in January 2010.

Singapore CPI inflation settled back a half percentage point to 5.0% in February but remained well above the 4% target ceiling.  Analysts anticipate an upward adjustment of the Singapore dollar’s trading range by the central bank next month.

South African on-year CPI inflation remained steady at 3.7% last month, defying expectations of a decline to below 3%, but the index of leading economic indicators for that country improved 1.6 points to 134.2 in January.

New Zealand recorded a NZD 2.8 billion current account deficit last quarter (equal to 2.3% of GDP) despite insurance inflows related to last September’s Christchurch earthquake. 

Norwegian unemployment eased to 3.2% in January from 3.3% in December and 3.5% in October.  Swedish overall economic sentiment fell to 112.7 in March from 114.0 in February.  Consumer sentiment dropped 2.4 points to 19.0, and industrial sentiment eased 0.3 to 3.0.  Danish consumer confidence continued to slide, printing in March at minus 0.8 after minus 0.5 in February and plus 3.3 in January. 

Hungarian retail sales were only 0.1% higher than a year earlier in January, while Polish retail sales growth accelerated to 12.2% between March 2010 and March 2011. 

U.K. mortgage loans in February totaled 29.9K in February after 28.9K in January according to the British Bankers Association.  Italy recorded a trade deficit of EUR 2.52 billion with countries outside the European Union in February versus EUR 2.18 billion in January and EUR 1.80 billion in February 2010.

Data on U.S. new home sales get released today.  The preliminary estimate of Euroland consumer confidence arrives as well.  An interest rate decision is due at Turkey’s central bank.

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

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