Awaiting FOMC Statement and Obama’s State of the Union Speech

January 27, 2010

With attention on the FOMC and tonight’s address from President Obama, stocks fell further and the dollar is mixed.

Equities lost 2.9% in India, 1.6% in Thailand and Australia, 1.4% in China, 1.2% in Singapore, 0.7% in South Korea and Japan, and 0.5% in Indonesia and Taiwan.  In Europe, the Paris Cac, British Footsie, and German Dax have fallen 1.0%, 0.8%, and 0.5%.  Investors continue to be rattled by Chinese plans to rein in bank lending.

The dollar has firmed 0.3% against the Swiss franc and 0.1% relative to the euro and Canadian dollar, but the greenback shows losses of 0.4% against sterling, 0.2% against the yen and 0.1% versus the Australian and New Zealand dollars.

Ten-year bund and Treasury yields are marginally higher.  Gilt and JGB yields are steady.

Gold and oil eased 0.4% and 0.1% to $1094.60 per ounce and $74.66 per barrel.

Iceland’s central bank somewhat unexpectedly cut its rates by 50 basis points in spite of ongoing disputes over the debt it owes.  Lower inflation was cited.

Australian consumer prices rose 0.5% last quarter and 2.1% from 4Q08.  These results were a tenth of a percentage point more than forecast.  On-year inflation had been 1.3% in the prior quarter.  The two measures of core CPI showed quarterly jumps of 0.7% and 0.6% and above-target on-year increases of 3.6% and 3.2%.  Australia’s index of leading economic indicators improved to 7.6% in November from 5.8% in October, 0.3% in September and minus 3.2% last June.  All these data point to more interest rate increases.

Japanese customs exports posted the first on-year increase, 12.1%, in 15 months, while imports were 5.5% lower than a year earlier.  The trade balance accordingly swung to a Y 545 billion surplus from a Y 322 billion deficit in December 2008.  The 2009 surplus of Y2.80 trillion was larger than the Y 2.06 trillion surplus of 2008 but still well below the surplus of Y 10.80 trillion in 2007.  Export volumes registered on-year growth of 14.7% in December, a dramatic improvement after on-year drops of 1.5% in November, 13.0% in October and 21.8% in September.  The low point, an on-year collapse of 45.4%, occurred in the year to February 2009.  The seasonally adjusted trade surplus was 1.2% greater than that in November, as exports firmed 2.5%.

The Bank of Japan’s January economic assessment was unchanged from December.  A continuing pick-up in growth is attributable to policy support from many countries, but private domestic demand is not yet on a self-sustaining footing.

China’s index of leading economic indicators softened to 104.8 in December from 105.4 in November.  The South Korean current account surplus in December of $1.52 billion was 64.4% narrower than November’s surplus.

Weber and Smaghi of the ECB made overnight comments that monetary stimulus would be gradually withdrawn in the months ahead.

German consumer prices in January fell more than expected according to five reporting states.  Each saw the CPI drop over 0.5% from December, which resulted in lower on-year inflation as well.

French consumer confidence of minus 29 in January was two points better than forecast.  France’s quarterly manufacturing survey highlighted rising capacity usage and a softer rate of job declines.

NYU economist Roubini at the Davos conference expressed extreme pessimism about Spain’s economy, which he felt could jeopardize the future of the common currency.  Spanish retail sales dropped 1.4% in December on a calendar-adjusted basis.

Swedish producer prices firmed 0.2% in December, cutting their 12-month rate of decline to 0.8% from 1.7% in the year to November.  Business sentiment in Finland worsened to minus 13 in January from minus 10 in December.  Russian unemployment last month stood at 8.2%.

The British industrial group, CBI, released results of its monthly survey of retailers, confirming a sharp deterioration to minus 8 in January from plus 13 in December.  The slide was amplified by unseasonably cold weather.

South African consumer prices increased 0.3% in December, lifting the on-year change above the inflation target ceiling to 6.3% from 5.8% in November.  Higher energy prices were to blame for the increase.  South Africa’s key interest rate has been at 7.0% since August, having been reduced from 12% prior to December 2008.

U.S. December new home sales data will be reported later.  A 16.7% slump in existing home sales was announced on Monday.  The main attention in the U.S. is on the FOMC statement, which is expected to retain plans to phase out its mortgage market support by March 31 and to keep language for a conditional promise to keep “exceptionally low levels of the federal funds rate for an extended period.”  Obama’s state of the union speech tonight is even more important.  Can he revive a presidency that’s been mired in a bad patch and stop the erosion of voter support from independents and the far left?

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

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