Markets Reacting Well to Draghi Unlimited Yet Conditional Bond Buying Commitment

September 7, 2012

Equities in the Pacific Rim jumped by 4.5% in China, 3.1% in Hong Kong, 2.6% in South Korea, 2.2% in Japan, 2.0% in India, 1.0% in Indonesia and the Philippines, and 0.8% in Australia and Singapore.  Australia’s market only firmed 0.3%, by comparison.  In Europe, stocks are up 2.2% in Italy, 1.1% in France, 0.9% in Germany, 0.6% in Spain and 0.2% in Britain.

Upward pressure on the Swiss franc has been alleviated.  The dollar rose 0.3% against the Swissie but fell 0.5% relative to the euro.  CHF/EUR weakened today from 1.2043 to 1.2157.  Lessening strain on the franc was reflected in Swiss reserves which increased by slightly less than CHF 10 billion last month.

The Aussie dollar climbed 0.5% against its U.S. counterpart, which otherwise is also down 0.1% against the kiwi and loonie, unchanged versus sterling and the yuan, and up 0.1% against the yen.

Gold slid 0.6% to $1696.00 per ounce.  Oil edged 0.2% higher to $96.73 per barrel.

Ten-year British gilt and German bund yields rose by nine and six basis points.  U.S. Treasury futures point to a sizable rise in the U.S. yield.  The 10-year JGB is a basis point firmer.

Several countries released industrial production or GDP figures.

  • Germany reported an unexpected 1.3% rebound in industrial production in July after a 0.4% drop in June. 
  • British industrial output growth of 2.9% in July also surpassed expectations.  Factory output went up 3.2% on month and only fell 0.5% on year.
  • Spanish industrial production adjusted for variation in the number of working days was 5.4% lower in July than a year earlier.  That’s less than the 6.1% decline in the year to June.
  • Dutch industrial production rose 1.3% on month and slid by a smaller 0.2% on a 12-month change basis.
  • Danish output rose 2.7% on month and eased 0.3% on year.
  • Norwegian industrial output slumped 4.5% on month, however, and this cut the on-year increase to 2.6% from 7.7% in June.
  • Greek GDP was 6.3% lower in the second quarter than a year before, similar to the 6.5% on-year drop in the first quarter.
  • Icelandic GDP plunged 6.5% on quarter and rose only 0.5% in the year to 2Q.
  • Hungarian GDP posted second-quarter drops of 0.2% from 1Q and 1.3% from a year earlier.
  • Czech 2Q GDP also fell 0.2% on quarter and was 1.0% lower than a year earlier.
  • Portuguese GDP sank 1.2% between 1Q and 2Q and was 3.3% smaller than in the second quarter of 2011.

U.S. and Canadian August labor statistics get released today at 12:30 GMT.  Yesterday’s release of better-than-forecast ADP private jobs and weekly jobless insurance claims have encouraged investors ahead of the U.S. Labor Department report.

Germany’s July trade and current account surpluses in July were larger than assumed, thanks to a 0.5% monthly rise in exports, which were also 9.2% larger in July than a year earlier.  The seasonally adjusted trade surplus of EUR 16.1 billion was very similar to its quarterly average in 2Q of EUR 16.0 billion and above the first-quarter mean of EUR 14.2 billion or the 2011 average surplus of EUR 13 billion. 

In yet another German data release, however, labor cost pressures intensified last quarter.  They were 1.5% greater than in 1Q12 and 2.5% higher than in the second quarter of 2012, up from an on-year pace of 1.8% in 1Q12.

British producer price inflation results in August were very near expectations.  The producer output price index rose 0.5% on month and accelerated to 2.2% in on-year terms from 1.8% in the year to July.  The producer input price index went up 2.0% from July and 1.4% compared to a year earlier.  A survey of expected CPI inflation over the next 12 months in the U.K. showed improvement to 3.2% from 3.7%.

Japan’s index of leading economic indicators posted a fourth consecutive drop, falling to a reading of 91.8 in August from 93.2 in July.  The index of coincident indicators fell by 1.3 points to 92.8, and the lagging index slipped by 0.3 to 86.3.

Japanese international reserves increased $465 million last month following a rise of $2.23 billion in June and a decline of $7.17 billion in June.

The French trade deficit narrowed nearly 30% on month to EUR 4.27 billion in July.  Finland’s trade surplus nearly doubled but is comparatively small at EUR 60 million. 

Hungary’s authoritarian Prime Minister Orbon said no to terms and conditions associated with his country’s loan from the IMF.

Australia recorded a larger-than-forecast trade deficit in July of AUD 556 billion.  Such was almost 2-1/2 times larger than in June.

Peru’s central bank reference interest rate was left unchanged as expected at 4.25% after this month’s policy meeting.

President Obama’s acceptance speech had little specific to say about the deficit and whether he is now prepared to use the Simpson-Bowles recommendation as a foundation for a budget compromise.

In addition to the aforementioned U.S. and Canadian employment/unemployment data releases, Canada will be releasing building permits and the IVEY-PMI index.  Starting tonight, Chinese monthly economic figures will start to be reported.

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

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