Focus on China, Japan, and European Banks

September 10, 2010

China’s yuan advanced another 0.2%; its 0.5% gain against the dollar this week was the largest since the first week of Beijing’s more flexible policy was announced in mid-June.

  • Trade figures released in Beijing today showed a smaller-than-forecast $20.03 billion surplus in August.  July’s $28.73 billion surplus had been the widest since January 2009.  August nonetheless saw the third surplus of at least $20 billion in a row, and such narrowed only because of more rapid on-year import growth of 35.2% after 22.7% in July.  Exports increased 34.4% in the year to August versus a 38.1% increase in the year to July.
  • It was announced that other Chinese data including the monthly CPI will be released Saturday instead of next Tuesday as initially scheduled.  This shift fanned speculation that the People’s Bank of China may announce an interest rate hike over the weekend.

Ten-year German bund and British gilt yields firmed another basis point.  Deutsche Bank share prices tumbled on news that institution will be selling a big chunk of stock to rebuild reserves.  The German Dax, Paris Cac, and British Ftse are 0.4%, 0.3%, and 0.1% softer.  The 10-year JGB yield firmed 3 basis points.

In the Pacific Rim, Japan’s Nikkei recovered 1.6%, helped by an upward revision to second-quarter Japanese GDP growth to 1.5% annualized from 0.4% reported last month.  Stocks rose 1.0% in South Korea, 0.7% in Taiwan, 0.4% in New Zealand and Hong Kong and 0.2% in China but fell 0.5% in Australia.  Many Asian markets were closed for religious holidays, including Indonesia, India, Malaysia, and Singapore.

Oil increased 2.2% to $75.86 per barrel, while gold prices edged down 0.1% to $1250.20 per ounce.

Japanese GDP growth in the first quarter also got revised higher to 5.0% at an annualized rate from 4.4% reported before.  Real GDP grew 2.4% between 2Q09 and 2Q10.  The revision to the 2Q growth rate stemmed mainly from a larger rise in non-residential investment of 6.2% annualized versus 1.9% reported earlier, a smaller drop in public investment of 10.3% instead of 12.9%, and a reduced drag from inventories of 0.2 percentage points instead of 0.7 percentage points.

The South African Reserve Bank cut its repo rate by 50 basis points to 6.0%.  The prior reduction of similar amount was made in March, and total cuts for the cycle so far total 600 basis points.

French industrial production rose 0.9% in July, a touch more than forecast, and was 6.4% greater than a year earlier.  Factory output advanced 1.4% on month and 5.9% on year.

By contrast, Italian industrial production firmed only 0.1% in July, a fifth as much as forecast, and grew 4.8% from a year earlier.  Italian officials revised up 2Q GDP growth by a tenth to 0.5%, and the on-year growth rate to 1.3% from 1.1% reported previously.  Growth in 2Q was spearheaded by a 3.3% jump in exports versus import growth of just 0.8% and no change in personal consumption.

British producer output prices were unchanged in August and showed a slightly smaller on-year rise of 4.7% after 5.0% in the year to July.  The core rate was 4.6%.  Producer input prices slid 0.5% on the month and to a 12-month increase of 8.1% from 10.8% in the year to July.

Swedish industrial production advanced 2.9% in July and 14.4% from a year earlier.  Industrial orders leaped 5.6%, easily reversing a 2.7% drop in June and producing a 12-month increase of 12.3%.  Unlike most central banks in Europe, the Riksbank has begun to move its key interest rates higher.

Norwegian consumer prices fell 0.2% in August and posted a 12-month rise of 1.9%.  Core CPI was up just 1.4% on year.  Producer prices firmed 0.3% on month in August and by 12.9% from a year before.

Hungarian consumer prices slid 0.6% in August and posted their smallest on-year advance (3.7%) since June 2009.  Core CPI rose just 1.5% on year.

Spanish consumer prices in August increased 0.3% and 1.8% from a year earlier, which had been expected.  The Danish CPI was 2.3% greater than a year before in August.  Portugal recorded on-year CPI inflation in August of 1.9%.

ECB President Trichet said it will take time to de-tox banks from their reliance on enhanced credit support.  Euroland’s current account posted a deficit last quarter equal to 1.1% of GDP, the same ratio as in the first quarter.

Bank of Japan Policy Board minutes from the August 9-10 meeting had a dovish tone.  Governor Shirakawa said downside growth risks loom higher than upside ones and explicitly mentioned the yen.  Prime Minister Kan also made remarks about the yen.  Chances look good that he will be replaced by Ichiro Ozawa as DPJ leader and prime minister after Tuesday’s leadership vote.

The 12-month rise in Indian industrial production of 13.8% in July was well above June’s 8% increase and forecasts of a 7.8% advance.  Factory output rose 15% between July 2009 and July 2010.

Filipino exports were 35.9% greater than a year earlier in July, a somewhat bigger rise June’s 33.4% climb and above what analysts were anticipating.

New Zealand export prices (+3.8%) rose more than twice as fast last quarter as did import prices (1.7%), and the terms of trade as a result went up 2.1%.

Canadian August labor statistics were decent despite an unexpected increase in the jobless rate to 8.1% from 8.0%.  Employment rose 35.8K, recovering from a 9.3% drop in July but was outpaced by a 53.5K increase of the labor force, which is actually a good omen.

U.S. wholesale inventories are due later today.  As always, the advent of the 9-11 anniversary in the United States has been a time of reflection with a touch of apprehension.

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

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