Risk Aversion Driven by North American Data

August 22, 2010

Over the final three days of last week, the dollar rose by 1.4% against the Australian dollar, 1.3% relative to the euro,l and 0.8% versus the Canadian and New Zealand dollars.  0.8% The greenback fell 0.8% against the Swiss franc but was hardly changed against the yen (+0.1%) and sterling (+0.3%).  The Dow Jones Industrial Index lost 1.8%, and 10-year Treasury yields eased three basis points. 

These symptoms of risk aversion reflected signs of slower U.S. and Canadian growth.

  • U.S. jobless insurance claims continued to back up higher, climbing to 500K in the week of August 14 and averaging 482.5K over the past four weeks versus 456K over the previous four weeks to July 17.  Even in a mild recession, new weekly jobless claims do not ordinarily get as high as a half-million.  Labor market health holds the key to recoveries in personal consumption and housing, and without this precondition, investment spending will not be sustained, either.
  • The Philly Fed manufacturing index swung to minus 7.7 in August from +5.1 in 5.1.
  • Manufacturing sales and orders respectively edged up 0.1% and fell by 0.3% in June, a further sign of subsiding momentum in Canada as the third quarter approached.  Canadian wholesale sales slid 0.3% in June, and the latest rise of the index of leading economic indicators in that economy (0.4%) was less than in prior months.
  • Canadian net capital inflows slowed sharply to CAD 1.4 billion in June from CAD 26.0 billion in May.
  • U.S. housing starts recovered less than hoped.

The central banks of Turkey (7.0%), Mexico (4.5%) and Colombia (3.0%) left their key interest rates unchanged as expected.  Turkish officials reacted to lessening inflation and weaker growth.  Mexican authorities have said that anchored expected inflation and excess resources allows unchanged policy. 

Minutes from the Bank of England’s early August meeting observed that inflation in the medium term is more likely to lie below than above the 2% target ceiling.  Officials considered by rejected easing policy but expressed a readiness to act if more monetary support is needed.  Committee member Andrew sentance wanted a 25-basis point rate hike, however, repeating is dissenting votes of June and July.

British retail sales advanced more sharply than anticipated, rising 1.3%, and German retail sales were revised higher.

The Central Bank of Iceland made a larger-than-forecast 100-bp cut in its benchmark interest rate to 7.0% last week.

Japan’s all-industry index edged up 0.1% in June and rose 0.8% in the second quarter. 

In the year  to 2Q10, real GDP increased by 8.9% in Malaysia and 12.5% in Taiwan.  Taiwanese export orders rose 18.2% in the year to July. 

Construction output in the euro area rose 2.7% in June.

Retail sales in South Africa climbed 1.8% in June and were 7.4% greater than a year earlier.

With two weeks remaining before the U.S. Labor Day weekend, the currency market’s unofficials end of summer, concern that was singularly directed at Europe at the start of the summer season in late may has shift to the U.S. business cycle.  Either way, the dollar is supported, and stocks look vulnerable.

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


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