Risk Aversion Wanes Somewhat

August 17, 2010

Currencies that benefit from greater risk aversion have eased.  The Swiss franc and yen lost 0.4% and 0.2% against the dollar, which otherwise fell by 0.6% against the Canadian and Australian currencies, 0.5% against the euro, 0.3% against the kiwi, 0.2% against the yuan and 0.1% relative to sterling.

Stocks recovered 2.2% in Sri Lanka, 0.9% in Australia, 0.7% in the Philippines, South Korea, and China.  Stocks in Japan and Singapore fell by 0.4%, however.  In Europe, the Paris Cac is up 1.0%, and the British Ftse and German Dax have traded 0.9% higher.

Sovereign bond yields are three basis points higher in Great Britain and Germany but down a basis point to 0.95% in Japan.  The 10-year Treasury yield future is higher.

Oil and gold prices rose 1.2% and 0.2% to $76.16 per barrel and $1228.40 per ounce.

Lots of chatter in Japan from current and past officials pointing to a diversity of opinion over whether to tolerate recent currency market developments.  Prime Minister Kan hinted that a new fiscal stimulus may be coming.

Minutes from the Reserve Bank of Australia’s interest rate policy meeting earlier this month express satisfaction with the 4.5% Official Cash Rate, observing recent global market volatility amid renewed uncertainty, a stronger Aussie dollar than in early July, little sign of domestic labor shortages yet, and core inflation that is presently below the target ceiling but likely to creep upward in 2012.  For now, lending rates are back around historical averages, and no urgency exists to resume monetary tightening.  150 basis points of rise in the Cash Rate were implemented between October 2009 and May 2010.

The euro area’s seasonally adjusted current account posted a sixth straight deficit, EUR 4.6 billion in June after EUR 7.4 billion in May.  The second-quarter deficit of EUR 17.6 billion was 85% wider than the first-quarter shortfall, but the unadjusted deficit of EUR 46.6 billion in the year to June 2010 was 64.5% narrower than the gap of EUR 131.2 billion in the prior twelve months.  The Basic Balance (current account plus direct and portfolio investment) showed a surplus of EUR 127.1 billion in the 12 months to June 2010 versus EUR 153.4 billion in the previous 12 months to June 2009.

New investor sentiment indices for Germany and Euroland were reported by the ZEW Institute.  Expectations are worsening, even as current conditions continue to improve.  In Germany, the August expectations index was 14.0, down from 21.2 in July, 28.7 in June and 53.6 in April.  The score is now only half its long-term average.  The current situation index improved to 44.3 from 14.6 in July, minus 7.9 in June, and minus 51.9 last March. 

The ECB bought fewer than EUR 19 billion of sovereign bonds in the past two weeks.  The size of the purchases are way down from levels when the program began in May.

British consumer prices slid 0.2% on month in July and by a tenth to 3.1% in on-year terms.  CPI inflation has been 3.0% or higher since January.  In a a letter to Chancellor of the Exchequer Osborne, Bank of England Governor King again expressed confidence that the 2.0% inflation target would be reached in the medium term once present temporary upward forces fade.  Core CPI in fact dropped to a 2010 low of 2.6% from 3.1% in June.  Improvement was concentrated in services, whose 12-month incline fell to 2.6% from 3.1% in June.  RPI and RPIX inflation each eased to 4.8% in July from 5.0% in June.

Swedish real estate prices rose 2.0% in May-July from February-April and by 7.0% from a year earlier.  Producer prices in Finland rose 0.3% in July and accelerated to a 12-month gain of 6.7%.

Unemployment in Hong Kong slid to 4.3% in July, lowest since December 2008, from 4.6% in June.

Scheduled U.S. data today feature producer prices, housing starts, industrial production and weekly chain store sales.  Canada will report the monthly survey of manufacturers and monthly long-term sales and purchases of securities vis-a-vis non-residents.

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

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