Investor Sentiment Hit By IFO Figures and Various Comments

February 23, 2010

Harvard Professor Rogoff, former chief IMF economist, is predicting likely sovereign debt defaults in coming years, plus spending cuts and weak growth in the United States.

Testimony by four Bank of England officials, including Governor King, were quite guarded.  Additional quantitative easing may be needed.

Economist Roger Bootle, a former British Treasury advisor, warned of deflationary risks in that economy.

The German IFO business sentiment index fell in February for the first time since March 2009 because of a big setback in retailing, which printed at minus 22, worst since April, after minus 12.9 in January.  The overall business index in Germany was 95.2 after 95.8 in January and 94.6 in December.  Analysts had projected a 96.2 reading.  The drop was entirely due to worsening current conditions.  Expectations firmed three-tenths to 100.9 versus 81.0 a year ago.

The IFO services index, in contrast, rose to 6.8 in February from 4.9 in January.  Current conditions were steady, but expectations improved.

Japan’s Nikkei closed down 0.5%, and stocks have faded 0.9% in the U.K., 0.7% in Germany and 0.4% in France.  Elsewhere in Asia, China’s CSI index lost another 1.1%, but bourses rose by 1.4% in Thailand, 0.9% in Singapore and 0.8% in Indonesia.

Ten-year gilt, JGB, bund and Treasury yields are all slightly lower.

The dollar is off 0.2% relative to the yen but has risen 0.5% against sterling, 0.3% against the euro and Swiss franc, 0.2% against the kiwi and Canadian dollar, and 0.1% relative to the Australian dollar.

Gold is steady at $1112.40 per ounce, whereas oil prices settled back 1.2% to $79.38 per barrel.

Investors are uneasy over the standoff between Japan’s Ministry of Finance and central bank over who bears most responsibility for fixing deflation.  Minutes from the BOJ’s late January meeting urged greater fiscal transparency.

Deputy Governor Battelino of the Reserve Bank of Australia said Aussie dollar appreciation will help mitigate inflationary pressure created by a mining boom.

Consumer prices in Singapore increased 0.7% last month but were only 0.2% higher than a year earlier.  Hong Kong’s CPI inflation decelerated to 1.0% in November-January.  Core CPI was zero.

British mortgage lending, according to BBA data, slumped to Gbp 35.1 billion in January from Gbp 45.9 billion in December.  A much smaller dip had been forecast.

French real household spending on manufactured goods sank 2.7% last month, easily reversing December’s 1.3% increase, and were just 1.5% greater than a year earlier.  The end of incentives saw the auto component plunge 16.7% last month.  Analysts had anticipated total spending dropping back about 1%.

French consumer prices dipped 0.2% in January and were 1.1% higher than a year earlier.  Italian consumer price inflation of 1.3% in January after 1.0% in December was confirmed by revised data.  Italian consumer confidence rose to 104.1 in February from 102.6.

Polish retail sales were 2.5% higher in January than a year earlier.  Such compared with a 12-month increase of 7.2% in December and one of 3.8% in January 2009.

Dutch business sentiment printed at minus 6.9 in February, somewhat better than expected but still below zero.

The UBS gauge of Swiss household consumption improved to a 16-month high of 1.36 in January from 1.19 in December.

Finnish unemployment rose to 9.5% last month.

The I.G. Metall wage settlement for engineering workers in North Rhine Westphalia, covering the period to April 2012, works out to an annualized advance of about 1.5%, lowest in at least 30 years.  Very benign German inflation and the sovereign debt problems of Portugal, Italy, Ireland, Greece and Spain are seen slowing down any rise in ECB rates over the coming year or two.

South African GDP growth accelerated to 3.2% annualized last quarter from 0.9% in the third quarter of 2009.  GDP was 1.4% higher than a year before.

Scheduled U.S. data today include the Case-Shiller house price index, consumer confidence, and the Richmond Fed index. 

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



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