Greece Default Fears Send Euro Lower

January 15, 2010

Trichet’s unbending remarks that Greece will not get special policy favors to address its huge government deficit has weighed sharply on the euro, which, along with the Swiss franc, fell 0.8% against the dollar.  One wonders if one intent of Trichet’s stance on Greece was in fact to temper the euro.

The dollar also gained against commodity-sensitive currencies, rising 0.6% against the Australian dollar, 0.5% against the kiwi, and 0.3% against the Canadian dollar.  The greenback is 0.3% higher against sterling but off 0.2% against the yen.

The Dax is off 0.6%, hurt by speculation German Chancellor might resign, which were denied by a government spokesperson.  Other bourses have done better, with gains of 0.7% in Japan, 0.8% in Taiwan, 0.4% in China, 1.2% in Pakistan, 1.0% in South Korea, and 0.3% in Great Britain.  Stocks are unchanged in Australia and France.

Oil and gold prices fell 0.9% apiece on concerns about the world recovery, dropping to $78.66/barrel and $1132.30 per ounce.

Ten-year JGB, bund, and gilt yields are each two basis points lower.  Greek 2-year notes are 50 basis points higher than two days ago.

Chinese reserves rose $127 billion last quarter, only slightly less than their gain in 3Q09, and are 23% higher than a year ago at $2.399 trillion.  Yuan loans were also reported to have climbed another CNY 380 billion last month, some 22% more than anticipated.  Chinese M2 soared 27.7% on-year in December.  Foreign investment inflows shot up 103% last year.  The kind of runaway expansion reflected in these data are making the prospect of a controlled appreciation of the yuan increasingly plausible.  China reports 4Q GDP growth next Thursday along with many monthly indicators.

Japanese stock and bond transactions generated a Y 949 billion inflow last week after an inflow of Y 285 billion in the week to January 2.

Consumer prices in the euro area rose 0.3% last month and by 0.9% from a year earlier.  These increased matched preliminary readings.  Core CPI was at 1.0%, same as in November but down from 2.1% in the year to December 2008.  Between end-2008 and end-2009, on-year CPI inflation fell to 0.3% in Germany from 1.1%, 1.1% in Italy from 2.4%, 0.9% in Spain from 1.5%, 0.7% in the Netherlands from 1.7%, minus 0.1% in Portugal from 0.8%, 1.8% in Finland from 3.4% and to minus 2.6% in Ireland from 1.3%.  Energy accounted for the entire acceleration of on-year CPI inflation from 0.5% in November.  Non-energy CPI held at a 0.8% 12-month rate of increase.  The ECB equates price stability to consumer price inflation of below but close to 2.0%.

Euroland’s seasonally adjusted trade surplus fell to EUR 3.9 billion in November from EUR 4.7 billion in October.  Exports posted their second consecutive on-month decline, although both drops were small.  The unadjusted surplus was EUR 4.8 billion, compared to EUR 6.6 billion in October and a deficit of EUR 1.2 billion in November 2008.  Exports were 5.8% lower than a year earlier, while imports tumbled 14.7%.

The combined Swiss PPI/import price index firmed 0.1% last month and fell 2.5% from a year earlier after declining 3.3% in the year to November.

German wholesale prices rose 0.2% both on month and on-year in December.  The WPI had dropped 10.0% in the year to July 2009 and fell 7.0% on average last year, following calendar year advances of 5.4% in 2008 and 3.5% in both 2006 and 2007.

Czech producer prices edged up 0.1% last month but were 0.8% lower than in December 2008. Export and import prices recorded December-over-December declines of 3.4% and 5.7%.  The Czech current account swung to a deficit of CZK 1.6 billion in November from a CZK 12.4 billion surplus in October.

Italian consumer prices rose 0.2% on month and 1.0% on year in December. Austria announced the same CPI increases as Italy.  Danish wholesale prices slid 0.6% in December but rose 0.3% on year.

Spanish house prices fell 0.5% last quarter and by 6.2% from the final quarter of 2008.  However, the rate of home sales in Spain slowed.  Swedish house prices were unchanged in December.  Finnish real retail sales slid 0.1% in the year to November. 

Turkey posted a 13.0% jobless rate in October.  Industrial production in Hungary fell 9.2% on year in November, a smaller drop than seen in the year to October.

This is a pretty big day for U.S. data releases.  Consumer prices, industrial production and the U. Michigan index of consumer sentiment are scheduled.  Canada reports auto sales, and the Bank of Mexico reveals its latest interest rate decision and is expected to leave such steady.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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