China and Greece Weigh on Investor Psychology

January 20, 2010

Markets continue to obsess about Greece’s fiscal problems.  Stark of the ECB said that fiscal rules mustn’t be bent to accommodate Greece and stressed that the euro area economic recovery will be uneven and slow.  The euro fell below $1.4200 and lost 0.9% against the dollar.  The Swiss franc also fell 0.9%, while sterling is down 0.6% against the greenback.

The chief of China’s Banking Regulatory Commission promised bank lending will be reined in during 2010 and set a target for such that is 22% less than last year’s jump in lending.  Fear of a less stimulative policy environment in China caused commodity sensitive currencies to sag sharply.  The U.S. dollar traded up 2.5% against the kiwi, 1.2% versus the Australian dollar and 0.6% relative to the Canadian dollar.

Separate data released in New Zealand and Australia had opposite implications for central bank policy in those countries and accounted for the divergent overnight performances of the Aussie and New Zealand dollars.

  • New Zealand reported a 0.2% quarterly drop in consumer prices during the fourth quarter following gains of 1.3% in 3Q and 0.6% in 2Q.  The drop was bigger than assumed and left on-year inflation benign at just 2.0%.
  • Australian consumer confidence jumped another 5.6% in January, responding to better labor market trends.  Skilled labor vacancies increased another 1.1% in January.

Republican Scott Brown has won the vacant Massachusetts senate seat.  The Democrats’ loss of a filibuster-proof senate majority throws healthcare reform legislation into great doubt.

The rise in Japanese machine tool orders was revised upward to a gain of 27.2% in December and a jump of 63.4% from a year earlier.  Japan’s Tertiary Index, a gauge of service-sector activity slid 0.2% in November and fell 3.2% from November 2008.  The index in October-November was merely 0.1% above the 3Q level.  Such had risen 0.5% between the second and third quarters of last year.

The Japanese government’s monthly economic assessment (“picking up but not yet autonomous as difficulties remain”) was left unchanged for a sixth straight time.  The assessment of financial market conditions was upgraded, and less risk was associated with currency market developments.

German producer prices slid 0.1% in December and fell 5.2% from a year earlier.  Non-energy producer prices were up 0.1% on month but down 1.7% on year.

Italian industrial orders and sales respectively jumped by 2.6% and 1.5% in November.  Compared to a year earlier, such were unchanged and down 8.9%.  Italy’s current account deficit widened 39% from October to EUR 4.6 billion in November.

Britain reported a 15.2K drop in unemployment in December, the biggest monthly drop since April 2007 and three times larger than forecast.  The jobless rate stayed at 5.0% on a claimant count basis but on an ILO basis slid to 7.8% in the three months to November from 7.9% in the three months to October.  Wage pressures remain very subdued, posting on-year gains of 1.6% in September-November both including and excluding bonuses.

Bank of England Governor King predicted that the recent spike in CPI inflation will be temporary and cited “undesirably low money growth” as proof.  M4 contracted over the last three reported months.  King denied stimulus would be reversed soon. Minutes from the central bank’s January policy meeting revealed a unanimous 9-0 vote to keep the Bank Rate at 0.5% and asset purchases at a limit of Gbp 200 billion.  The vote was as expected.  In the minutes, officials spoke of weak but positive growth ahead and continuing significant headwinds to be overcome.

The French budget office revised its projection of the 2010 deficit inward to 8.2% of GDP from 8.5%.

South African retail sales posted a bigger-than-forecast 6.6% drop in the year to November.  Such was the 10th consecutive on-year decline.

Malaysian CPI inflation accelerated to 1.1% in the year to December from a dip of 0.1% in November on higher food costs.

Taiwanese export orders, which only turned positive from a year ago in October, leaped 52.6% between December 2008 and December 2009 after posting a 37.1% gain in the year to November.  The Bank of England minutes observed that the global economic recovery will be much less synchronized than the prior world recession.

Canadian inflation was much less than forecast last month.  The CPI dipped 0.1% seasonally adjusted and by 0.3% on an unadjusted basis, recording an on-year increase of just 1.3%.  While at a ten-month high, the 12-month gain was six-tenths lower than anticipated and up from 1.0% over the year to November.  Core CPI slid 0.3% unadjusted in December and recorded an unchanged 1.5% increases from a year earlier.

U.S. housing starts and producer prices are scheduled for release today.  Canada will be also reporting results of its monthly survey of manufacturing sales, orders, and inventories.  China releases 4Q GDP and several monthly indicators tonight.  Preliminary PMI readings for Euroland, Germany and France are due Thursday as well.

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

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