Pound Softer Following Some Poor Data, Investors Await ECB

September 2, 2010

Sterling fell 0.4% against the dollar, which otherwise is down 0.4% against the kiwi, 0.3% versus the yen and Swissy, and 0.1% against the euro.  The dollar edged 0.1% higher against the Aussie dollar and is steady relative to the Canadian dollar.

In Britain, the Nationwide house price index dropped 0.9% last month, three times more than forecast, trimming the 12-month advance to 3.9% from 6.6% in July.  The U.K. construction purchasing managers index declined two points to 52.1 in August following readings of 54.1 in July and 58.4 during the second quarter on average.

Following the good start of U.S. stocks in September, Japan’s Nikkei rose 1.5% and move back above the 9000 level.  Equities also climbed 2.0% in Sri Lanka and the Philippines, 1.3% in China, 1.2% in Hong Kong, 0.8% in Australia, 0.7% in Taiwan and 0.6% in South Korea.  However, the German Dax, Paris Cac and British Ftse show losses of 0.2-0.3%.

Ten-year sovereign bond yields are up 5 basis points in Japan and 3 basis points in Germany and Britain.

Oil and gold prices show minimal change at $73.76 per barrel and $1248.00 per ounce.

The European Central Bank is not expected to change its key rates, but analysts anticipate an announcement to retain liquidity support past year end even though new staff forecasts will embody an upward revision of projected 2010 GDP growth.

There already have been three central bank rate announcements since the Wednesday close in New York.  All three decisions were expected.

  1. Brazil’s Selic rate was retained at 10.75% as officials hinted there will be a pause in increases for a couple more months.
  2. Bank Negara Malaysia kept its key rate at 2.75% in the face of a likely slowdown of export demand.
  3. The Swedish Riksbank lifted its key rate by 25 basis points to 0.75% and kept the indicated future rate path it had announced in July.

GDP in the euro area rose 1.0% last quarter and by 1.9% from the second quarter of 2009.  On-year growth among members ranged from negative 3.5% in Greece and minus 0.1% in Spain to +1.1% in Italy, +1.4% in Portugal, +1.7% in France, +2.1% in the Netherlands, +2.2% in Belgium, and +3.7% in Germany.  During the second quarter, investment in Euroland (+1.8%) provided the main source of growth.  Personal consumption and government spending each gained 0.5%.  Exports and imports both rose 4.4%, enhancing GDP growth by just 0.1 percentage point (ppt) on balance.  Another 0.2 ppts came from inventories.

Swiss real GDP increased 0.9% last quarter and by 3.4% from 2Q09.  Growth was led by construction and investment.

Euro area producer prices firmed 0.2% in July and 4.0% from a year earlier.  Energy costs went up 0.6% on month and 9.7% on year, a swing from a drop of 0.6% in the twelve months to February.  Non-energy producer price inflation remained steady at 2.0%.

Italian producer prices slid 0.1% in July but were 4.1% above their year-earlier level.

French unemployment of 9.3% in the second quarter after 9.5% in 1Q was less than forecast.  Auto sales in France were 2.9% lower in August than June and 10.5% weaker than a year earlier.  Non-auto retail turnover and wholesale sales in Euroland’s second largest economy were up 1.1% and 1.3% last quarter.

The campaign for the leadership of Japan’s Democratic Party heated up further with both Prime Minister Kan and his challenger, Ozawa, making comments about the yen.  Ozawa reiterated that yen appreciation in the short term, not long term, must stop, while Kan blamed the trend on dollar weakness.  The leadership vote in the ruling party is set for September 14.

A major hurricane with winds up to 145 MPH, Earl, continues to threaten the U.S. Eastern Seaboard from North Carolina to Maine.

Japan’s monetary base showed lessening on-year growth of 5.4% in August after 6.1% in July, but the trend remained well above that in the first half of the year when the base clocked on-year growth of 3.1% in 1Q and 3.4% in 2Q.  The Bank of Japan’s balance sheet expanded to JPY 123.0 trillion at end-August from JPY 117.4 trillion at end-July.

Scheduled U.S. data today feature factory orders, pending home sales, quarterly productivity, and weekly jobless insurance claims.

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

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