Sharply Higher Yen

February 25, 2010

Uneasiness about Europe sent the yen and dollar higher.  The yen gained 0.9% against the dollar and hit a one-year high against the euro of 120.20.  At the new peak, the yen is 41.4% higher relative to the euro than when it stood at 170 per euro on July 23, 2008.

The dollar has risen 0.7% against sterling, 0.4% against the euro, Swissy, Aussie dollar and kiwi.  The greenback is 0.2% stronger versus the Canadian dollar.

This from Greece: strikers in the streets of Athens turned unruly, while Moody’s and S&P escalated warnings of a possible downgrade of Greece’s credit rating.

This from Turkey: the lira softened sharply as the Islamist-leaning government detained more secularist army officers.

Ten-year bund, gilt, and JGB yields fell 2, 5, and 3 basis points, while lower Treasury yields are also indicated.

The Nikkei fell 1.0%.  Stocks dropped 1.6% in Korea, 1.4% in Taiwan, 1.2% in Indonesia and Australia, 0.5% in Singapore, and 0.3% in Hong Kong.  The German Dax and British Ftse are 0.2% higher.  The Paris Cac is trading 0.1% lower.

Oil and gold prices are 0.5% and 0.4% softer at $79.61 per barrel and $1092.70 per ounce.

Economic sentiment in the euro area failed to rise in February, printing at 95.9 versus 96.0 in January, 94.1 in December and a low of 70.6 last March.  Analysts had anticipated a reading of 96.6.  The main weakness was in retail, which worsened four points to minus 9.  Consumer confidence slid a point to minus 17, while industrial sentiment improved a point to minus 13.  Services rose two points, and construction was unchanged but very weak at minus 29.  A separate business climate index climbed to a 16-month high of minus 0.98.

German labor statistics were better than expected but distorted yet again by job creation schemes.  Unemployment went up 7K, less than half as much as forecast, and the jobless rate of 8.2% was a tenth lower than feared.  Unadjusted unemployment was significantly higher at 8.7%, typical of the winter season.  Jobs were 0.3% lower in January than a year before.  In the United States, where job creation did not receive as much attention, employment fell 3.0% between January 2009 and January 2010.  German construction orders were 8.2% greater than a year earlier in December.

British business investment tumbled 5.8% last quarter and by 24.1% from 4Q08.  A slight rise had been assumed, and this discrepancy kills hopes that British GDP growth might get revised upward.

Euroland money and credit growth remains very docile in January.  M3 was 0.1% higher than a year earlier leaving the change in November-January at minus 0.1% from a year earlier.  Credit and loans to the private sector posted on-year changes of +0.1% and minus 0.6%.  Loans to companies fell more sharply (2.7%) than the on-year drops of 2.2% in December or 1.9% in November.  Mortgage lending rose 1.8% from January 2009.

French consumer confidence printed unexpectedly weakly at minus 33 in February, three points worse than in January.  Analysts expected minus 28.

But Italian business sentiment among manufacturers improved to a 20-month high of 84.0 in February from 83.2 in January.

France saw higher producer price inflation last month than anticipated, with gains of 0.7% from December and 0.4% from a year earlier.

Economic sentiment in Sweden improved to 107.7 in February from 103.9 in January, as business sentiment advanced 7 points to +3 and consumer confidence gained 4.5 points to +13.  Swedish producer prices jumped 2.0% last month but were just 0.3% higher than in January 2009.  Household loans in Sweden recorded robust on-year growth of 9.2% in January.  Finnish business sentiment rose five points in February to minus 1.  Norwegian unemployment of 3.2% this month was as expected.

Spanish producer prices were 0.9% higher than a year earlier in January.  Belgian consumer prices firmed 0.4% on month and 0.7% on year in February.  Portuguese consumer sentiment worsened to minus 34.4 in February from minus 32.3 in January.

Swiss employment held steady at 3.96 million last quarter and was just 0.1% lower than a year earlier.

Australian business investment shot up 5.5% last quarter, nearly four times more than forecast.  Even before this number, which fully reversed a drop in 3Q, a rate hike next week was priced into market thinking.

The Filipino trade balance swung to a deficit of $579 million in December from a $85 million surplus in November.  South Korea posted a $448 million current account deficit in January but a $1.55 billion trade surplus.  Hong Kong exports and imports were 18.4% and 39.5% greater in January than a year earlier, and the trade deficit amounted to HK$ 29.5 billion that month.  Taiwanese industrial output was 69.7% greater than a year earlier in January.

Brazil’s central bank announced an increase in reserve requirements to take effect on March 22, saying emergency liquidity support is no longer needed.

The New York area is bracing for another huge snow storm today through Saturday.  Early departures of traders from their desks are likely today.  Fed Chairman Bernanke is supposed to deliver the senate portion of his six-month testimony on the economy today.  Scheduled U.S. data today include jobless insurance claims, the KC Fed index, the FHFA housing index, and durable goods orders.

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

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