G20 Finance Ministers and Central Bankers Meeting in Mexico City

February 24, 2012

It’s been a decent Friday.  In signs of a risk-on trading sentiment, share prices are higher.  Oil is up, and the yen and dollar is down.  Revised German and British GDP data provided few surprises.  An  important meeting of Group of 20 officials begins today.

The dollar rose to as high as JPY 80.67, highest in over seven months.  The greenback, on the other hand shows overnight losses of 0.4% against sterling, 0.3% versus the euro, Swissie, and kiwi, and 0.2% relative to the Australian dollar.  China’s yuan is unchanged, and the loonie has ticked down 0.1%.

In the Pacific Rim, equities rose 1.6% in China, 1.5% in Pakistan, 1.1% in Sri Lanka, 0.6% in South Korea, and 0.5% in Japan, Australia, and Thailand.  In Europe, the German Dax and Paris Cac are up by 0.9% and 0.6% after a few days of losses.

The ten-year British gilt yield fell three basis points.  Comparable yields on German bunds and Japanese JGBs are up 1 bp and unchanged.

Oil keeps pressing higher and is now above $108 at $108.44, 0.6% above Thursday’s close.  Oil prices are very difficult to predict and represent a key wild card in the global growth outlook.  Gold prices are 0.2% lower but still close to a lofty $1800 at $1782.40 per ounce.

German real GDP fell 0.2% last quarter or 0.7% at an annualized rate.  Exports (down 0.8%), machinery and equipment investment (off less than 0.1%), and personal consumption (down 0.2%) each fell from the 3Q level.  Net foreign demand exerted a 0.3 percentage point drag on GDP.  In on-year terms, GDP rose 1.5% after gaining 2.6% in the year to 3Q and 3.8% between 4Q09 and 4Q10.  But adjusted for variations in the number of working days, GDP remained 2.0% higher than a year earlier.  On such a basis, real GDP (up 3.1% in 2011) exceeded 3.0% for a second straight year. 

It used to be that Germany was a good proxy for the whole euro area economy, but lately Germany marches to a faster drum and has not been indicative of regional economic trends.  Likewise, the German fiscal deficit to GDP ratio in 2011 was only 1.0%, down from 4.3% in 2010 and 3.2% in 2009, while the deficits of Euroland’s peripheral members remain well above the 3% threshold.

British real GDP also dipped 0.2% last quarter and, according to revised data, went up 0.5% in 3Q rather than 0.6% as reported earlier.  Compared to a year earlier, GDP increased just 0.7%, similar to the rise between 3Q10 and 3Q11.  The main depressant on growth last quarter came from a big drop in business investment and a half-percentage point drag from inventories.  Net exports was a mitigating factor, lifting GDP growth by 0.6 percentage points.

Japanese corporate service prices dropped 0.6% in January and were 0.2% lower than a year earlier.  Core CSP fell by 0.3% on year.  Prime Minister Noda engaged in further verbal intervention.  Since revealing covert intervention in November and possibly more recently, officials have managed to jaw-bone the yen from the mid-70s into the low 80s per dollar.  They appear to seek even more depreciation.

The governor of Australia’s central bank, Glenn Stevens, characterized monetary policy now as neutral and more or less correct.

China’s index of leading economic indicators jumped 1.6% in January, twice as much as in December.   The recent cut in Chinese reserve requirements to 20.5% took effect today.  Industrial production in Singapore rose 3.3% last month but was 8.8% lower than the very elevated January 2011 level.  Consumer sentiment in South Korea improved two points to a reading of 100 in February.

French consumer confidence went up a point to 82 this month.  Such was the second one-point rise in a row.

Italian retail sales fell 1.1% on month, more than twice expectations, and by 3.7% on year in December. Icelandic CPI inflation edged down to 6.3% in February from 6.5% in January.  Spanish PPI inflation slowed sharply to 3.6% last month from 5.2% in December. Finland’s PPI increased 1.0% on month in January but only 1.8% from a year before. 

Scheduled U.S. data today include the U. Michigan index of consumer sentiment and new home sales.  Several Fed officials (Bullard, Plosser, and Williams) have speaking engagements today.  Colombia’s central bank will reveal an interest rate decision.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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