Dollar Reversal Gaining Momentum

December 15, 2009

The dollar has risen 1.1% against the Australian dollar, 0.8% versus the Swiss franc, 0.7% relative to the euro and kiwi, 0.5% against sterling and 0.4% against the Canadian dollar.  USD/JPY slid 0.2%.  Investors are scrambling to unload short dollar positions, believing the U.S. will grow faster than thought previously and fearful about the Greek fiscal deficit and exposure of European banks.  The euro touched a two-month low of $1.4522.

Stocks are somewhat lower, with drops of 0.2% in Japan, 1.2% in Hong Kong, 0.8% in China, 1.3% in India, and 0.8% in Singapore.  In Europe, the Ftse is off 0.5%, and the Dax and Cac40 have edged down 0.1%.

The ten-year JGB fell two basis points to 1.29%. Greek bond yields rose well above 5.6%, stretching their premium to bunds to 246 bps from less than 230 bps.

Gold eased 0.8% to $1115.20 per ounce.  Oil edged up 0.1% but remains below the key $70 level at $69.61 per barrel.

Markets await tomorrow’s FOMC statement and a ton of U.S. data today: industrial production, producer prices, Treasury portfolio capital flow figures, the NAHB index, and the N.Y. Fed factory index.

Minutes from the Reserve Bank of Australia’s early December policy meeting when the cash rate was increased for a third straight time indicate that the decision to do that had been a very close call and hinted at a pause in tightening because those rate hikes are seen “materially shifting the stance of policy to a less accommodative setting and, therefore, as increasing flexibility to the Board at future meetings.”

Australia reports 3Q GDP tomorrow.  Today real government consumption and public investment were reported to have risen by 0.7% and 6.2% last quarter.  They represent about 25% of GDP.  New Zealand’s finance minister said the budget gap would not be as wide as markets fear.

British consumer prices rose 0.3% in November and climbed to a six-month high on-year advance of 1.9%.  Fuel costs led the advance, but core CPI was also up 1.9% on year.  Retail price inflation of 0.3% from a year earlier was above zero for the first time since January and 1.1 percentage points greater than the 0.8% drop in the year to October.  RPIX inflation accelerated to 2.7% from 1.9%.  These results were a bit greater than assumed.

The house price gauge of Britain’s Department of Communities and Local Government showed an on-year drop of 2.2% in October, almost half of September’s 4.1% decline.  The Royal Institute of Surveyors house price balance measure reached 35, up from 34 in October and its most favorable reading since November 2006.

According to the German ZEW Institute, investor expectations toward Germany slid again to 50.4 in December from 51.1 in November and 56.0 in October.  But the assessment of current conditions improved to minus 60.6 from minus 65.6 in November.  The sister indices for Euroland published by ZEW showed the expectations component dropping under 50 to 48.0 from 51.8 and 56.9 in October and the current conditions component at minus 67.8, up from minus 70.3.  While these result were not as good as expected, they are consistent with the slow recovery that’s expected.

The prestigious German IFO Institute upwardly revised projected German growth in 2010 to 1.7%, a similar forecast to those of the Bundesbank and RWI Institute.

Euro area nominal hourly earnings rose 3.2% in the year to 3Q09, down from the spike to 4.3% in the second quarter.  Wages and benefits posted on-year gains of 3.1% and 3.6% last quarter.  Italian hourly wages advanced 0.2% in October and by 3.2% from a year earlier.

Swiss industrial production rose 3.4% last quarter, falling just 6.7% from a year earlier after tumbling 14.9% in the year to 2Q09.

The Dutch trade surplus was EUR 3.80 billion in October, similar to its year-earlier result as exports and imports posted drops of 16% and 18%.

Norway’s trade surplus of NOK 29.8 billion last month was 22.3% narrower than that of November 2008. Exports (down 15.3%) fell almost twice as much as imports.

French consumer prices firmed 0.1% in November and 0.4% from a year earlier, the first on-year rise in seven months.  Spanish consumer price inflation also swung into the black, printing at 0.3% after minus 0.7%.  That was the first on-year gain in nine months.  Czech producer prices rose 0.4% in November and fell 2.4% from a year earlier, half the 4.6% drop in the year to October.  Energy is the main item behind these swings.

Russian industrial production was 1.5% greater in November than a year earlier, the first on-year advance since October 2008.

Turkish unemployment averaged 13.4% in August-October, up 2.7 percentage points.  South African consumer price inflation of 5.8% in November was a tenth less than expected and within the central bank’s targeted boundaries.

Brazilian retail sales rose 1.4% and by 8.4% on year in October.

Like the United States, Canada releases several indicators today: the leading index of economic indicators, motor vehicle sales, and quarterly productivity and unit labor costs

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

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