New Overnight Developments Abroad: Mild Protest of Dollar Softness From ECOFIN

October 20, 2009

The dollar slid 0.3% against the yen, 0.2% versus the Swiss franc, and 0.1% against sterling and the euro.  The greenback recovered 0.4% against the Canadian and New Zealand dollars and 0.1% versus the Australian dollar.  Several key psychological levels are in play: JPY/USD 90.0, Swissy and C-dollar parity with the U.S. dollar, and EUR/USD 1.50.  Speculation persists about Russian intentions to diversify away from the dollar.

ECB President Trichet joined Euroland finance ministers (ECOFIN) in calling excessive currency movements bad for the economy, but no concrete threat of counter-measures (e.g., intervention) was made.  Fact is the dollar has softened in a rather orderly way.

Minutes from the Australian monetary policy meeting on October 6, which hiked the cash rate by 25 basis points, imply more tightening to come, observe an improving economy, and predict that inflation will bottom at a higher level than assumed previously.  Core inflation indeed still lies above target.  Officials seem ready to accept further Aussie dollar appreciation.

Australian imports fell 3.9% in September from August.

The Nikkei climbed 1.0%, but European stocks are flat to marginally lower.  Elsewhere, equities gained 1.5% in China, 1.6% in Vietnam, 1.1% in Australian, and 0.6% in South Korea, but stock markets fell by 0.7% in Indonesia, 0.6% in India, 0.8% in Thailand, and 3.2% in Sri Lanka.

Ten-year bund yields are 7 basis points higher, and JGB yields edged up a single basis point.

The December oil contract showed an $80-something print ($80.06/barrel), but the November contract is 0.3% lower at $79.38.  Gold advanced 0.6% to $1064.90 per ounce.

Japan’s revised index of leading economic indicators produced a 81.8 diffusion index, best since September 2005.  The coincident diffusion index of 90.0 was the highest since June 2006.  The lagging diffusion index (40) remained below the expansion or contraction dividing line of 50.

Japanese machine tool orders fell 62.1% from a year ago but posted a solid monthly gain.  Department store sales fell 7.8% in the year to September, their 19th on-year decline in a row.

German producer prices fell 0.5% last month and posted a larger 7.6% on-year drop than the 6.9% decrease in the year to August.  Energy prices fell 1.7% in September, while all other producer prices were unchanged from August.  On-year PPI inflation has been negative since April but was +7.9% in the year to September 2008.  Germany shows no sign of inflationary pressure.

Italian industrial orders fell 27.5% in the year to August, while industrial sales dropped 21.2%.  These were considerably larger drops than forecast.

British M4 rose 0.7% in September and 11.3% from a year earlier.  U.K. public finance figures for September were released showing deficits of Gbp 11.3 billion on the current budget, Gbp 14.8 billion on public-sector net borrowings, and Gbp 19.4 billion the public-sector net cash requirement.  In comparisons of the first half of the present fiscal year (April-September) to a year earlier, the PSNCR gap widened 251% to Gbp 76.2 billion, the PSNB widened 129%, and the current budget gap grew 153% to Gbp 61.5 billion.  Debt equaled 59% of GDP in September, up from 48.4% a year earlier.

Britain’s Council of Mortgage Lenders reported a small increase of 1.6% in gross mortgage lending last month but a large on-year drop of 27%.

Euroland construction remains very depressed.  Output slid 0.4% in August, and the July-August level was 2.5% lower in 2Q and 10.6% below a year earlier.  While German construction jumped 4.2% in August, both France and Spain saw construction drop by 1.6% in the latest reported month.

Finnish unemployment improved to 7.3% in September from 7.6% in August.  Dutch unemployment was steady at 5.0% last quarter.

A Czech central banker recommended further rate reductions, since inflation next year is apt to lie below target.

Malaysia’s central bank chief implied that intervention would be unnecessary, calling FX activity orderly.

The Bank of Canada releases a scheduled interest rate policy statement at 13:00 GMT (see preview).  The U.S. reports producer prices, housing starts, and housing permits today.

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


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