Considerable Quantity of New Data to Absorb

December 15, 2011

At the quarterly monetary policy review, the Swiss National Bank did not adopt a weaker franc/euro ceiling rate but instead retained the 1.2000 level, which has been policy since September 6.  The franc as a result is today’s strongest currency, rising 1.0% against the dollar.  SNB officials also retained a zero-0.25% target range for three-month Swiss Libor and reiterated their readiness to intervene in unlimited amounts to defend the franc’s ceiling.  Finally, they predicted a softer franc in time, as the currency remains “high.”

Japanese automakers urged government action to more forcefully counter the strength of the yen.  The latest protest comes after the release of the Bank of Japan’s quarterly survey of business conditions and expectations.  The so-called Tankan survey showed an 8-point deterioration of the diffusion index for big manufacturing to a pessimistic reading of minus 4, even though all respondents on average were somewhat less bearish with a reading of minus 7 after minus 9 in the September survey and minus 18 back in June.  All classes of survey participants expect a deterioration of conditions during the coming three months.  Planned investment and projected sales and profits have been revised downward.

The dollar has slipped 0.3% against sterling, 0.2% versus the yen, and 0.1% against the euro, Australian dollar, kiwi, and loonie.  The yuan is unchanged but touched a two-month high against the euro.

Equities were hammered in the Pacific Rim but have trimmed yesterday’s losses in Europe.  Share prices fell 2.4% in China, 2.3% in Taiwan, 2.1% in South Korea, 1.8% in Hong Kong, 1.7% in Japan, 1.4% in Singapore and Pakistan, 1.3% in Indonesia, and 1.2% in Australia.  The German Dax has recovered 0.9%, and the Paris Cac and British Ftse are 0.6% firmer.

The yields on 10-year Japanese JGBs and German bunds eased two and one basis points.  That on British gilts of same maturity firmed one basis point.

Oil and gold prices rebounded 0.5% and 0.2% after substantial weakness on Wednesday.  They stand at $95.43 per barrel and $1590.40 per ounce.

The mood surrounding the euro debt crisis remains grim.  I’ve seen no analysis that liked last week’s summit result or any that even called it better than imagined.  Many reviews have been scathing.  A Rubicon seems to have been crossed this week.  A heavy consensus now looks for the common currency to fall apart at some point.  Tellingly, foreign nations including Japan, the United States and China are reluctant to lend support through either the IMF or by giving seed money to European facilities.  In that respect, this crisis resembles the Lehman collapse.  Any hope of rescue is slipping away through the cracks.  Europe’s sovereign debt crisis and banking crisis have become inseparable.  Fitch downgraded its rating on five regional banks.  Bank of France Governor Noyer preemptively asserted that a downgrade of French sovereign debt would be unwarranted.

Preliminary purchasing manager survey results were released for China, Euroland, Germany, and France.

  • The HSBC Chinese manufacturing index rebounded to a two-month high of 49.0 in December from 47.3 but was the fifth sub-50 reading in six months.
  • Euroland results improved from the November scores and were better than forecast.  They nonetheless remain low and point to regional GDP growth of negative 0.6% last quarter (a contraction of about 2.5% annualized).  The composite score of 47.9 represents a 3-month high after 46.5 in October and 47.0 in November.  It was the fourth straight sub-50 reading.  Manufacturing rose by 0.5 to 46.9.  Services improved 0.8 to 48.3.
  • The German composite PMI rose 1.9 points to a 4-month high of 51.3.  Manufacturing ticked up only 0.2 to a sub-50 score of 48.1, while services rose 2.4 points to 52.7.  Cost pressures persisted in Germany.  German growth was close to zero in 4Q11.
  • The French composite PMI recovered a whole point to a 3-month high of 49.8.  Manufacturing printed 1.4 points higher at 48.7, while services (50.2) were above 50 for the first time since September.  French growth seems likely to be negative in 4Q11.
  • The disparity widened in December between Germany and France on the one hand and the every other euro member on the other.
  • New Zealand’s business purchasing managers index worsened to a 2-1/2 year low of 45.7.

Final CPI inflation in the euro area confirmed the preliminary indication of a 0.1% monthly rise in November and on-year inflation of 3.0% for a third straight month.  Core inflation printed at 1.6% for a third straight time as well.  In November 2010, headline and core inflation stood at 1.9% and 1.1%.

Jobs in Euroland contracted by 0.1% last quarter, breaking a string of quarterly advances, and were just 0.2% higher than a year before.  Between 3Q10 and 3Q11, jobs rose 1.2% in Germany but fell by 7.6%, 1.5% and 0.8% in Greece, Spain and Portugal.  The Greek jobless rate was 17.7% in 3Q, up from 16.3% in 2Q.

British retail sales fell a tad more than forecast in November, dropping 0.4% on month and posting a smaller on-year increase of just 0.7%.

Britain’s monthly CBI survey of industrial trends sank to a 14-month low of minus 23 in December from minus 19 in November.

Swiss industrial orders and output were 4.3% and 1.4% lower in the third quarter than a year earlier.

Dutch retail sales in October were 1.7% weaker than a year earlier.  Italian CPI inflation ticked down to 3.3% in November from 3.4% in October.  Danish and Czech PPI inflation amounted to 5.2% and 5.6% in the year to November.  Irish producer prices rose 0.9% last month but showed a smaller 1.9% 12-month rate of increase.  Sweden posted a 7.4% jobless rate last month after 7.5% in October.

South African PPI inflation remained in double digits at 10.1% in November but was lower than forecast and also than October’s 10.6% pace.  Turkish unemployment eased to 8.8% in August-October from 11.3% a year earlier. 

Australian motor vehicle sales slid 0.7% in November and to a 12-month increase of 2.9% from 4.4% in the year to October.  The just-released quarterly RBA Bulletin indicated that Chinese demand for Aussie coal and iron, while firm in 3Q11, seems to be slackening now.  Expected inflation over the coming twelve months in Australia eased to a 31-month low of 2.4% this month from 2.5% in November.

Chinese foreign direct investment tumbled 9.8% on year in November, the first drop in two years.  South Korean exports were 12.7% higher than a year earlier in November.  Japanese stock and bond transactions last week generated a JPY 624 billion capital outflow, almost twice as much as the outflow in the week of December 3rd.  Filipino unemployment fell to 6.4% in October.  The growth of retail sales in Singapore accelerated sharply in October to 8.5%.

Today’s heavy U.S. data calendar features the Philly Fed and Empire State manufacturing indices, industrial production, producer prices, the quarterly current account, Treasury TIC capital flow figures, and weekly jobless insurance claims.  Canada reports quarterly capacity usage.  IMF Director Lagarde and the Fed’s Lockhart speak publicly.

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

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