Monday's Developments

September 28, 2009

The dollar hit an eight-month low of 88.22 yen but was as strong as 1.5766 per pound sterling during Monday.  At the close however, it was up 0.5% against the euro, more than its net 0.3% gain against sterling, and it had lost just 0.1% against the yen.

The Nikkei lost 2.5%, but the DOW and Dax rose 1.6% and 2.8%, respectively.

Gold closed with little change, while oil advanced 1.4%.

Ten-year Treasury, bund and JGB yields fell 4, 2 and 3 basis points.

Finance Minister Fujii of Japan called stable foreign exchange rates desirable, a comment that seemed at variance with other remarks that have encouraged investors not to expect intervention even if the yen rises further.

ECB President Trichet said a strong dollar is an important condition for the world economy.

World Bank President Zoellick, who previously held high positions in the Bush administration, prefers regulatory powers over financial institutions in the U.S. to be vested with the Treasury, not the Fed.

The German parliamentary election leaves Angela Merkel as Chancellor for a new four-year term.  While her CDU/CSU captured its smallest popular voting share since 1949 and 1.4 percentage points less than in 2005, the libertarian Free Democrats had their best showing with a record-high 14.6% voting share.  So the previous Right-Left grand coalition will be replaced by a center-left majority government of the CDU/CSU/FDP, with 332 of 623 seats.  The new leadership is more predisposed to cutting and simplifying taxes and deregulating labor markets.  The huge budget deficit, however, may constrain what is practically feasible in the coming four years.

German consumer prices fell 0.4% in September and 0.3% from a year earlier.  Each of these drops surpassed expectations.  Core inflation appears to have held at 1.1%.  German construction orders fell 8.4% in the year to July.  Consumer confidence rose for a fifth straight time, gaining 0.5 to 4.3 in September.

The index of leading economic indicators in Euroland climbed 1.8% in August on top of increases of 1.6% in July and 1.3% in June.

Hungary’s central bank rate was cut to 7.5% from 8.0% as forecast.  Hungary’s jobless rate averaged 9.9% in the three months to August.

Italian consumer confidence jumped much more than expected to 113.6 in September from 111.8 in August.  Finnish consumer confidence rose 3.5 points to 11.7 in September, while business sentiment improved six points to minus 17.

The British hometrack house price index firmed 0.2% in September, trimming the 12-month decline to 5.6% from 8.7% in the year to August.

The Dallas Fed factory index jumped to minus 6.4 in September from minus 9.1 in August.  The Chicago Fed National Activity Index suffered a setback to minus 0.90 in August after minus 0.56 in July.

Reserve Bank of Australia Governor Stevens again implied that the next rate move will be higher and not a long time away from now.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.


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