Post-FOMC Drop of Dollar and Rise of Gold Extended

April 28, 2011

Gold prices advanced 1.0% overnight to $1531.70 per ounce and are 5.4% above the close of $1453.10 of April 12th. Oil prices are 0.2% lower at $112.60 per barrel.

The dollar has fallen 0.5% against the yen, 0.3% relative to the Australian dollar, Canadian dollar, and euro, and 0.2% against sterling, Swiss franc and the yuan.

The U.S. dollar rose 0.7% against the kiwi.  Late yesterday came word that the Reserve Bank of New Zealand kept its Official Cash Rate at a cyclically low 2.5%.  The rate had been cut by 50 basis points at the previous policy meeting in response to a severe earthquake on the South Island.

Japan’s Nikkei advance 1.6%.  The Chinese, Indian, Thai, and Hong Kong stock markets lost 1.5%, 0.8%, 0.8%, and 0.4%, however.  The Paris Cac and German Dax are up 0.6% and 0.4%, while the British Ftse is steady.

The 10-year British gilt yield slid five basis points.  The 10-year German bund and Japanese JGB yields are respectively up a basis point and down one bp.  Greek, Portuguese, and Irish bond premiums versus German bunds remain prohibitively high but are not impeding euro strength.

Japan had several data releases.

  • Labor statistics for March, the month of the Sendai earthquake, outshined expectations.  The jobless rate stayed at 4.6%, and the job offers ratio edged upward to 0.63 from 0.62 in February.  Employment posted a smaller 0.2% on-year decline than a 0.6% drop in the year to February.
  • The manufacturing purchasing managers index slid further to 45.7 in April from 46.4 in March and 52.9 in February.
  • Real household spending plunged 2.3% on month in March and were 8.5% lower than a year earlier versus an expected decrease of 7%.  Real disposable incomes recorded an on-year drop of 3.2%.
  • Industrial production dived 15.3% in March and was 12.9% below the March 2010 level.  Output had risen 1.8% in February, and surveys suggest such will rise 3.9% in April and another 2.7% in May.  If true, production in those two months would still be 5.4% below the first-quarter average level.  Output fell 2.0% between 4Q10 and 1Q11 and was 2.4% weaker last quarter than in the first quarter of 2011.  The inventory ratio increased 4.0% in March.
  • Stock and bond transactions generated a JPY 1176 billion capital inflow last week after a JPY 231 billion net outflow in the week of April 16.
  • Tokyo consumer prices firmed 0.1% in April and were 0.1% lower than a year earlier.  The 12-month rate of  ex-energy and seasonal food CPI inflation was zero.
  • Housing starts were 2.4% lower than a year earlier in March after posting a 10.1% gain in February.
  • Construction orders sank 11.0% on year versus a rise of 19.5% between February 2010 and February 2011.
  • National consumer prices slid 0.1% seasonally adjusted in March and were unchanged on year for a third straight month.  Core CPI (excluding only seasonal food) was negative 0.1%, and core-core inflation (ex seasonal food and energy) was 0.7% lower than a year earlier.

The Bank of Japan Policy Board voted 9-0 to keep the uncollateralized overnight call rate in a range of zero to 0.1%.  A recommendation to further increase the asset purchase program by one Board member, Nishimura, was defeated by the other eight people.  He sought a JPY 5 trillion rise to JPY 45 trillion in the limit.

The Bank of Japan also released a new Outlook for Economic Activity and Prices, revising projected GDP growth in fiscal 2011 to 0.6% from 1.6% forecast three months ago.  Growth in the following fiscal year starting in April 2012 is now put at 2.9%, up from a prior prediction of 2.0%.  The report stresses that the impact of the earthquake on the economy will change over time and that the magnitude and timing of this evolution remains very uncertain.  Officials believe that the fundamental supports that were pulling Japan out of a deceleration phase in the business cycle before the earthquake still remain.  Core CPI inflation is expected to be positive and run at +0.7% both this fiscal year and in the next one.  Governor Shirakawa anticipates a recovery of exports and industrial production later this year.

German labor statistics showed an as-expected 37K decline in unemployment in April to a sub-3 million level for the first time since mid-1992.  The seasonally adjusted jobless rate held steady at 7.1%.  Such was 7.8% a year earlier, 8.3% two years earlier, and 10.9% in May 2006 when the U.S. housing market crested.  German jobs rose 0.3% between 4Q10 and 1Q11 and by 1.4% between the first quarters of 2010 and 2011.

German import price inflation slowed to 11.3% in March from 11.9% in February.  The month-on-month increase was 1.1%.  Non-oil import price inflation slowed to 7.7% in March from 8.8% in February and 9.3% in January, depressed by a strong euro.  German export prices firmed 0.3% on month and 4.9% on year in March.

Italian business sentiment softened to 103.0 in April from 103.5 in March, which was revised down from a three-year high of 103.8 reported initially.

British consumer confidence weakened to a reading of minus 31 in April versus minus 28 in March and minus 16 in April 2010.

Swedish consumer confidence fell to 17.6 in April from 19.0 in March.  Sweden’s economic tendency index weakened to 109.8 from 112.3 in March.  Swedish producer prices were unchanged on month in March but accelerated in on-year terms to 1.7%.  Analysts were looking for a steeper acceleration to 2.1%.  Sweden’s trade surplus narrowed somewhat in March but the first-quarter surplus of SEK 26.0 billion was 81% wider than the SEK 14.4 billion surplus a year earlier.  Finland reported a 9.3% jobless rate in March and a 2.1% on-year rise for that month in retail sales volume.

French consumer spending on manufactured goods fell 0.7% in March after a 0.9% rise in February.  Such rose 1.2% in the first quarter, only two-thirds as much as in the final quarter of 2010, and were 2.6% above their 1Q10 level.

Belgian consumer prices rose 0.3% in April and 3.4% on year.  Icelandic consumer prices went up 0.8% in April and 2.8% from April 2010.  Irish retail sales were 1.7% lower in March than a year earlier.

South African producer price inflation accelerated to a seven-month high of 7.3% in March from 6.7% in February and 5.5% in January.  The PPI rose 0.9% on month.  South Africa’s index of leading economic indicators rose 1.0% in February.

Scheduled U.S. data today feature the first estimate of first-quarter GDP growth, weekly jobless insurance claims, the Chicago and K.C. Fed manufacturing indices, and pending home sales.  Duke of the Federal Reserve will be speaking.  Canada releases wage earnings figures.

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

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