Unsuccessful Japanese Intervention

September 24, 2010

It is believed that the Bank of Japan did a second round of forex intervention, selling yen in follow-up to the massive operation conducted on September 15.  Unlike then, the central bank did not comment on or confirm that it had acted.  Market participants were not surprised by the action, as the yen had crept higher to 84.20 per USD beforehand.  The presumed intervention lifted the dollar momentarily to an overnight high of 85.4, but it gave back that ground and is presently 0.1% firmer against the U.S. currency than at yesterday’s New York close.

The dollar otherwise has dropped 0.8% against the euro, 0.5% versus the Swiss franc and Australian dollar, 0.3% relative to the Canadian dollar, 0.2% against sterling and 0.1% versus the kiwi.  The yuan is unchanged on the day but up 0.3% against the dollar for the week.

Equity movements overnight reflected a greater sense of risk.  Losses occurred in Japan of 1.0%, New Zealand of 0.5% and Australia of 0.7%.  Markets in Europe have traded down 0.5% in France and 0.4% lower in Germany and Britain.  Some Asian bourses did quite well in contrast, with gains of 1.8% in Indonesia, 0.8% in India, and 1.7% in Sri Lanka.

The 10-year JGB yield eased three basis points to 1.01%.  Comparable German bunds slid two basis points, but gilts firmed three basis points.

Oil and gold prices rose by 0.2% and 0.3% to $75.36 per barrel and $1300.30 per ounce.  Gold had not traded as high as $1300 previously.

The declines in European equities occurred in spite of better-than-expected regional data.  An appreciating euro is adding to concern about sovereign debt and European banks.

  • French real GDP growth in the second quarter was revised up a tenth to +0.7% from 1Q and 1.7% from 2Q09.  Personal consumption soared 3.9%, and business investment went up 1.1%.  Domestic demand and inventory building made growth contributions of 0.4 and 0.6 percentage points, which was mitigated by a 0.3 percentage point drag from net exports as imports also shot up 3.9% not annualized.  Finance Minister Lagarde said growth in 3Q could range anywhere between a rise of 0.3% and one of 0.7%.
  • Germany’s IFO Institute released its September business climate index, which unexpectedly improved to 106.8 from 106.7 in July.  The index had been at 101.9 in mid-2010, 94.6 at end-2009 and 91.3 a year ago.  All of the improvement in September reflected a 1.5 point rise in present conditions.  The expectations component, which anticipates change over the coming six months, fell for a second straight month.  Three of the industrial sectors (manufacturing, construction, and wholesaling) had lower readings in September than August, but those drops were outweighed by an advance in the retail sector to 11.4 from 9.2 in August, 3.9 in July, minus 12.4 at end-2009 and minus 13.2 in September 2009.
  • The IFO survey of services also produced a higher reading, an increase to 20.5 from 20.0 in August, 18.0 in July and 15.5 in June.  Like the business survey, expectations weakened while the present situation improved.
  • German import price inflation settled back to 8.6% in August from 9.9% in July.  Import prices were 0.2% higher on month.  The import price inflation excluding oil stood at 7.4% last month, similar to July’s 7.5%.

Swedish producer prices fell 0.5% in August and 1.3% higher than a year earlier.  Import prices dropped 1.2% on month and by 0.4% on year.  Italian retail sales were steady in June and 1.7% above a year earlier.  Polish retail sales posted a larger on-year 6.6% increase than had been forecast.

Australian data confirmed a healthier budget situation than expected.  Central banks in Mexico and Colombia will make interest rate decisions today.  Analysts are not anticipating any changes.

Scheduled U.S. data include durable goods orders and new home sales.

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

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