Unsettling Data Releases

January 19, 2010

The ZEW reports on investor sentiment toward Germany and Euroland weakened more than expected in January.  For Germany, the expectations index fell to 47.2 from 50.4 in December, 51.1 in November and 56.0 in October.  The expectations index for the euro area printed at 46.4, down from 48.0 in December, 51.8 in November and 56.9 in October.  While the readings remain above their long-term averages, the trends underscore the fragility and at best gradual pace of likely future growth.  The readings for current conditions rose by 4.0 points to minus 56.6 in Germany and 5.1 points to minus 62.7 in Euroland.

Japanese consumer confidence sagged 1.9 points to a six month low of 37.6 in December. Such had crested at 40.5 in September and October.

Construction output in the euro area slumped another 1.1% in November.  Such was 8.0% lower than in November 2008, and the output level in October-November was 1.4% below the third-quarter mean level.  In beleaguered Spain, construction was 16.5% less than a year before.

British consumer price inflation leaped to 2.9% in December from 1.9% in the year to November and 1.1% as recently as September.  Although due in part to adverse base effects, the monthly increase of 0.6% was also significant.  There had not previously been a 1.0 percentage point increase or larger in on-year inflation between adjacent months.  Core CPI increased sharply too, printing at 2.8% in December after 1.9% in November and 1.7% in September.  RPI inflation accelerated to 2.4% from 0.3% in November and minus 1.4% in September.  RPIX inflation was 3.8%, up from 2.7% in November, 1.9% in October and 1.3% in September.  Inflation is now well above the Bank of England’s target.  Central bank officials had forewarned of a spike in inflation but predict it will be temporary.  Still, this makes for a tougher landscape in which to be running an ultra-loose credit policy.

In response to the shocking British price data, sterling firmed 0.3% against the dollar, but the Ftse is down 0.9%.  Gilt yields are sharply higher and once again aabove 4.00% on the ten-year.

Amid higher risk aversion, the dollar otherwise is steady against the yen and up by 0.8% against the Swiss franc, 0.6% versus the euro and Aussie dollar, and 0.3% relative to the Canadian dollar and kiwi.

Bund yields rose almost 4 basis points to 3.285%, and the 10-year JGB is up 2 basis points at 1.34%.

For a second week in a row, the People’s Bank of China engineered an 8-basis point advance in the 1-year Chinese bill rate to 1.93% in what is seen as a subtle step to rein in the torrid pace of bank lending.  Several other Asian stock markets were spooked by this move and by the poor Japanese consumer sentiment reading.  The Japanese Nikkei lost 0.8%.  Stocks also rell 1.4% in Thailand, 1.3% in Sri Lanka, 1.1% in Taiwan, 1.0% in Australia and 0.6% in New Zealand.  Weakness has continued in Europe, where the British Ftse, German Dax, and Paris Cac are trading 0.9%, 0.8%, and 0.7% lower.

Oil got as weak as $77.07 per barrel and is down 0.3% on balance at $77.78.  Gold edged off 0.1% to $1132.20 per troy ounce.

The central bank in Sri Lanka left its key repo and reverse repo rates unchanged as expected at 7.5% and 9.75%.

The unemployment rate in Hong Kong was 4.9% in the three months to December after 5.1% in the three months to November. That was the first sub-5.0% result since the three months to January 2009 and somewhat less than had been forecast.

Australian imports were 7.1% higher in December than in the prior month.

The central banks in Japan and South Korea are extending their emergency yen-won swap line, which was to have expired at the start of next month by another three months to the end of April.

Norwegian existing home sales were unchanged last quarter.

Hungarian wages posted a sharper-than-forecast 3.0% on-year drop in November.

U.S. markets reopen after a three-day holiday weekend.  Scheduled data releases include the NAHB index and monthly capital flows compiled by the Treasury Department.  The Bank of Canada is likely to announce no change in its interest rate policy (see preview).  The announcement arrives at 14:00 GMT.  Canada’s index of leading economic indicators also will be released today.

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

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