Lighter Data Calendar at End of Difficult Week

December 16, 2011

Investors await with trepidation the continuing and still-uncontained European sovereign debt and banking crisis.  ECB President Draghi maintains the view that the central bank has no silver bullet and that it’s up to national governments to implement asap those steps agreed on December 9.  The pessimistic mood is captured by IMF Managing Director Lagarde’s dire warning that “there is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies, that will be immune to the crisis that we see not only unfolding but escalating.”

The dollar fell 1.2% and 0.8% against the New Zealand and Australian dollars and is otherwise marginally softer, with dips of 0.2% against the loonie and 0.1% versus the euro, Swissie, and sterling.  The euro is clinging to ground above $1.3000 but just barely.

European bourses are consolidating their heavy weekly losses and did not follow the decent Friday session is several Pacific Rim centers.  The German Dax is 0.1% firmer, while the Paris Cac dipped 0.1%.  Earlier, equities rose 2.1% in China, 1.8% in Indonesia, 1.4% in Hong Kong, 1.2% in South Korea, 1.0% in Thailand, 0.9% in Singapore, 0.5% in Australia, and 0.3% in Japan.

The yields on ten-year Japanese JGBs and British gilts edged a basis point higher, while that on German bunds dipped two basis points.

Gold advanced 1.0% to $1592.40 per ounce, whereas oil slid 0.1% to $93.77 per barrel after yesterday’s OPEC decision to increase production quotas for the first time in three years.

Share prices in India closed 2.2% lower.  The Reserve Bank of India broke a streak of rate tightenings dating back to March 2010 by instead leaving the key repo rate for lending unchanged at 8.5%.  The reverse repo rate at which the central bank will borrow stayed at 7.5%, and the reserve requirement ratio also was left unchanged at 6%.  Officials noted intensifying downside growth risks and are projecting lower inflation.

Hourly labor costs in the euro area decelerated to an on-year rate of 2.7% in the third quarter from 3.3% in 2Q.  Both wages and benefit costs slowed to 2.6% and 3.2%, respectively.

The euro area recorded a second consecutive seasonally adjusted trade surplus in October, which printed at EUR 0.3 billion after EUR 2.2 billion in September.  However, this development was associated with October versus August declines of 3.9% in imports and 3.0% in exports.  The weakness of two-way trade flows is to be expected as the region sinks into recession.  The unadjusted year-to-date trade deficit of EUR 18.8 billion was 72.5% wider than a year earlier.  Over the first nine months of 2011, Germany scored a EUR 117.9 billion trade surplus, which stood in contrast to deficits of EUR 65.8 billion for France, EUR 36.7 billion for Spain, EUR 23.1 billion for Italy, EUR 13.2 billion for Greece and EUR 12.4 billion for Portugal.  Without addressing these disparities, no attempt to end the euro area crisis can succeed.

French officials at INSEE conceded the likelihood of mildly negative GDP growth in Euroland’s second largest economy in both 4Q11 and 1Q12 but maintain that the recession will be short-lived.  The agency’s business sentiment index fell to 94 in December, a 21-month low, from 96 in November.

The Italian current account deficit narrowed 29.5% on month to EUR 2.5 billion in October.  An Italian parliamentary vote of confidence is expected to pass.

Irish GDP sank 1.9% last quarter and was 0.1% softer than a year earlier. 

Consumer confidence in Turkey improved to a reading of 91.0 in December from 89.7 the month before.

Unemployment fell to 6.4% last quarter in The PhilippinesSingapore’s trade surplus dropped 74% to SGD 1.3 billion in November.

U.S. consumer prices will get released at 13:30 GMT.  Dudley, Evans and Fisher of the Federal Reserve are scheduled to speak publicly as are the heads of the ECB and Bank of England.  Canada reports capital flows generated by securities transactions.  An interest rate decision of no change is seen likely in Colombia.

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

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