The Week of December 28 – January 1st

December 28, 2009

The market’s main inspiration a week ago was that the inverse relationship between the dollar and equities had broken down, as each were doing well.  Since the close on December 21st a week ago, the dollar on balance depreciated 1.8% against the Canadian dollar, 1.1% against the Swiss franc, 0.8% against the euro, 0.7%, and 0.3% relative to the New Zealand kiwi.  These losses in the dollar outweighed in significance the gains of 0.5% against the yen and 0.3% against sterling.  Nonetheless, stocks continued to push higher, with advances over the past week of 1.1% in the DJIA, 1.2% in the German Dax, 4.4% in the Japanese Nikkei-225, and 2.0% in the British Ftse.  Consistent with the view that recovery prospects remain more positive than negative, investors continue to anticipate tighter monetary policies in 2010, and this is reflected in higher ten-year sovereign debt yields, which show rises of 16 basis points in the United States and Germany, 14 bps in the U.K., and 8 bps in Japan.  Oil and gold prices are 6.0% and 1.9% firmer than a week ago.

It may be that once trading volume returns to normal in January, evidence will again mount that the dollar/stockmarket relationship has morphed, and that the inverse correlation in the past few days was a distortion caused by holiday interruptions.  Britain and Canada remained closed today for Boxing Day.  Japan and Germany will shut down after Wednesday.  Most other markets will close early on Thursday for New Years Eve, and no holiday is observed by more regions and individual markets than New Years Day.  Such is the purist holiday of all.

The only central bank meeting of this week wrapped up today in Israel, where another 25-basis point hike to 1.25% was undertaken in follow-up to last month’s similar 25-bp advance.  Premier Wen of China made the most newsworthy remark of the period, rebuffing foreign calls for a more flexible yuan policy to be implemented now and declaring that no such change is in the offing.  In Japan, where the fledging Democratic Party is struggling to halt a slide in its popularity, the hospitalization of Finance Minister Fujii introduced a new element of uncertainty.

Japan released two important indicators today.

  • Total retail sales posted an on-year decline in November of 1.0%, matching October’s outcome.  Large-store sales were 9.6% lower than a year earlier, accelerating from on-year drops of 7.2% in October and 5.6% in September.  Department store sales plunged 11.7% from November 2008, and clothing sales fell by 15.2%.  Japanese personal consumption is very weak, and the recovery cannot be considered self-sustaining until such turns upward.
  • Industrial production remains very buoyant, by contrast, supported by government stimulus and brisk Asian demand.  Output posted a solid 2.6% advance in November, the ninth consecutive monthly increase.  Compared to the trough last February, industrial output has recovered 27.1%.  Survey evidence meanwhile suggests that industrial production will post a 23% annualized rise in the final quarter of 2009 and be 4.4% higher in January than the 4Q09 average level.

There were two conflicting Fed manufacturing reports released today.  The Dallas Fed index slid to a contractionary value of minus 0.5 in December from +5.9 in November, but the Chicago Fed mid-western regional gauge printed at an 11-month high of 84.2.  The KC Fed index will also get released this week.  The Case-Shiller house price index, a few regional PMI reports, the Conference Board consumer confidence index, and weekly jobless claims and energy inventories will round out this week’s U.S. data calendar.

Europe will release a considerably bigger batch of data than the U.S. later this week.  From Euroland arrives money and credit growth figures, retail PMI scores, German consumer prices, French housing starts, budget trends, and revised GDP, and Italian business sentiment and producer prices.  Saxony, one of the six German states upon which the preliminary CPI estimate is based, already has reported that consumer prices in that state went up 0.8% in December — partly on seasonal forces — and accelerated in on-year terms by half a percentage point to 0.8%.

Britain will be reporting both the Nationwide and GFK measures of consumer sentiment this week, as well as the results of central bank survey of credit conditions.  Switzerland‘s index of leading economic indicators, current account, and consumption indicator are due, and so are Swedish trade figures.  Scheduled data highlights in eastern Europe include Czech industrial output and Hungarian and Polish current account updates.

China and Japan will be reporting manufacturing PMI readings.  South Korea releases several items including industrial production, consumer prices and its current account.  South Africa and India report trade figures, and Turkey announces industrial output.

Beyond December beckons a new month, year and decade.

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

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