Stronger Yen and Swiss Franc

September 14, 2010

The dollar lost 0.4% against the yen and 0.3% against the Swissy.  The dollar otherwise rose 0.8% versus the kiwi, 0.3% against the euro, 0.2% relative to the Australian dollar, and 0.1% against sterling.

China’s yuan advanced another 0.2% against the dollar, bringing its cumulative climb to 0.9% since September 3.  The yuan had only gained 0.5% between June 18 and September 3rd.

Stock market movements overnight were mostly mild.  Gains amounted to 0.7% in India, 0.6% in New Zealand, 0.5% in Taiwan, 0.4% in Indonesia, 0.3% in Australia, 0.2% in Hong Kong and 0.1% in China.  Japan’s Nikkei slid 0.2%, and in Europe, the German Dax, Paris Cac and British Ftse have each traded up 0.1%.

Ten-year sovereign bond yields fell six basis points each in Germany and Britain and by two basis points in Japan.  Ezone peripheral bond spreads vis-a-vis Germany are wider today.

Oil prices fell by 0.6% to $76.60 per barrel, while gold prices are 0.6% firmer at $1254.50 per ounce.

Japanese Prime Minister Kan survived a leadership challenge within the DPJ Party by a 721-491 vote and will remain prime minister.  He does not plan to call early Lower House elections but hinted that the Y 915 billion planned economic stimulus could be expanded by a supplementary budget.

The ZEW Institute’s investor confidence indices for Germany and the euro area were much weaker than forecast, suggesting that Germany’s rapid expansion has crested and that Euroland growth could slow more than assumed in 2H10.

  • The German expectations index swung to minus 4.3 in September from +14 in August, +21.2 in July and +28.7 in June.  It is now well below the long-term mean of 27.2 and at a 19-month low.
  • Euroland’s expectations index dropped to 4.4 from 15.8 in August.  Analysts were anticipating a score of 14.5.
  • Current conditions are still improving, according to surveyed investors nevertheless.  The current situation index of 59.4 in Germany was up from 44.3 in August.  That for Euroland rose to minus 6.3 from minus 13.0.

Euroland industrial production in July was also disappointing, showing no change from June after dipping 0.2% in that prior month.  On-year growth in output of 7.1% was the smallest 12-month gain since 4.3% in the year to February.  Industrial production climbed 3.2% on month in Ireland and 0.9% in France, but it slumped by 2.5% in Greece, 1.2% in Portugal and 0.3% in Spain.  July output was still 0.2% higher in July than the 2Q average level, but that represented a huge slowdown from annualized quarterly growth of 10.3% in 2Q and 9.8% in 1Q.

Hourly labor costs in Euroland slowed to an on-year increase of 1.6% in the second quarter from 1.9% in 1Q and 3.5% in the year to 2Q09.  Wages rose 1.5% between the second quarters of 2009 and 2010, while non-wage costs increased 2.0% down from 3.8% in the year to 2Q09.  Wage costs have not been this low since at least 2000.

German wholesale prices leaped 1.6% in August and by 6.4% from a year earlier.  On-year WPI inflation had been 5.3% in July and 0.2% last December.  Analysts were anticipating only a modest monthly advance after drops of 0.2% in June and 0.3% in July.

British consumer prices and two house price measures were reported.

  • The CPI’s increase of 0.5% in August from July and 3.1% from a year earlier were higher than expectations of 0.3% and 2.9%.  Core inflation accelerated to 2.8% from 2.6%.  The RPI and RPIX indices each showed 12-month gains of 4.7%, while the RPIY index was up 3.4%.  Service-sector CPI inflation remained at an uncomfortable 4.0% in August.  Britain is the only G-7 economy with a visibly high inflation rate.
  • The Department of Community and Local Government house price index showed an 8.4% on-year increase in July, down from 9.4% in June and 11.0% in the year to May.  It was the smallest on-year gain since February.  The monthly change was minus 0.3%.
  • The Royal Institute of Chartered Surveyors house price balance worsened sharply to minus 32% last month from minus 8% in July.
  • The Nationwide index of U.K. consumer confidence also was released, showing a five-point improvement to +61 in August.

French consumer prices firmed 0.2% in August and posted a 12-month increase of 1.4%.  Core CPI edged up 0.1% and decelerated to a 12-month gain of 0.6% from 0.8%.  Italian labor costs increased 0.7% last quarter and by 3.4% from 2Q09.

India’s most watched price gauge, the wholesale price index, showed to 8.5% on year in August from 9.8% in July under a new base year of comparison but was at a higher 9.6% under the old base.  Either way, inflation exceeds target, making a rate hike by the Reserve Bank of India likely after Thursday’s policy meeting.

Turkish GDP grew 10.3% on year in the second quarter and by a greatly accelerated 3.7% from the first quarter.  Consumer spending has spearheaded this revival.

Japanese industrial production in July got revised to a drop of 0.2% from a 0.3% increase that was reported initially.  Output was 14.2% higher than a year earlier, down from a 17.3% advance in the year to June.  After climbs of 7.0% in 1Q and 1.5% in 2Q, production in July was 0.9% below the 2Q level.  Capacity utilization dipped 0.3% in July but was 16.0% greater than a year earlier.  Capacity edged up 0.1% on month and 3.2% on year.

New Zealand retail sales fell 0.4% in July.  Analysts had anticipated they would be steady on month.  Non-auto sales edged 0.1% lower following a 1.5% increase in June.

Australian business conditions in August were unchanged at +5, while business confidence improved nine points to +11.

The United States releases retail sales today, as well as the IBD/TIPP optimism index, business inventories, and the NFIB (national federation of independent business) survey, and weekly chain store sales. Canada reports quarterly labor productivity, capacity utilization, and labor costs, as well as new car sales.

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

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