Third-Quarter Wind-Down

September 30, 2010

Many data releases arrived on this final day of the third calendar quarter.  Sentiment is better toward Europe and more guarded about Japan and the United States.  ECB 12-month and 6-month loans totaling EUR 93 billion are expiring.  EUR 28 billion of 3-month ECB liquidity is not getting rolled over, as a EUR 104 billion tender will replace the expiring EUR 132 billion.  To ease the market reaction, Europe’s central bank is lending EUR 29.4 billion of six-day funds.

Moody’s downgraded Spain’s credit rating by only one step to Aa1 and posted a stable outlook.  Investors had feared a more drastic change.  Irish officials are fashioning a rescue of Allied Irish Banks PLc.  Irish and Spanish bond premiums relative to German bunds have narrowed.

The dollar eased 0.7% against sterling, 0.6% versus the Swiss franc, 0.4% against the yen, and 0.2% relative to the euro, Canadian and New Zealand dollars.  The greenback is unchanged against the Aussie dollar and up 0.1% versus the yuan following Chinese official warnings that U.S. congressional sabre-rattling about the yuan could have counter-productive results.  Market chatter is fixated on the possibility of new quantitative easing by the Fed and Bank of England and suspicion that Washington officials are running a policy of dollar benign neglect to boost U.S. competitiveness.

Equities in the Pacific Basin closed widely mixed, with markets advancing 2.1% in China, 0.9% in Sri Lanka, and 0.6% in Thailand and India but falling by 2.0% in Japan, 1.3% in Australia, 1.5% in New Zealand and 0.3% in Singapore.  The Paris Cac, German Dax, and British Ftse have slipped 0.7%, 0.2% a dn 0.1%.

Gold rose another 0.4% and broke above $1315 per ounce.  Other metal prices are up, too.  Oil gained 0.7% to $78.42 per barrel.

After reporting a third consecutive decline of industrial production in Japan, officials there changed their assessment of output to “appears to be flat and is likely to be weak.”  The assessment was previously “continues to show an upward movement.”  Production dropped 0.3% in August and is forecast to dip 0.1% in September and plunge another 2.9% in October.  Industrial shipments fell 0.5% in August.  In July-August combined, industrial production was 1.1% lower than the 2Q level and up 14.8% on year, down from on-year growth of 27.5% in 1Q and 21.0% in 2Q.

Japanese housing starts showed a 20.5% on-year advance in August after gains of 4.3% in July and 0.6% in June.  In contrast to this better-than-expected outcome, construction orders were flat on year, well below a forecast rise of 8-9%.

Japanese retail sales posted on-year growth of 4.3% in August after 3.8% in July and 3.7% in 2Q.  Large-store sales dropped 1.9% in the year to August, more than their 1.3% decline in the year to July but less than the 3.5% decrease in 2Q.

Japan’s manufacturing purchasing managers index (49.5 in September after 50.1 in August and 52.8 in July) fell below 50 for the first time in 15 months, signaling a swing from expansion to contraction.  Sub-components for production and demand also were lower than 50.  These data dovetail with the Tankan survey, wherein businesses indicated a likely weakening trend between September and December.

The British Nationwide house price index edged 0.1% lower in September and posted a smaller on-year increase of 3.1% after 3.9% in the year to August.  Consumer confidence in the U.K. worsened two points to minus 20 but was consistent with analyst forecasts.  Adam Posen, a Bank of England policymaker, has said that more quantitative easing may be needed.

Euroland’s preliminary CPI report for September indicates an acceleration to 1.8% from 1.6% in August.

German unemployment fell by 40K in September, twice as much as in August and also much more than the 23K drop in July.  The jobless rate ticked down unexpectedly to 7.5% from 7.6%.  German jobs edged up 0.1% in August and were 0.5% higher than a year earlier.  Such had dropped 0.2% between 1Q09 and 1Q10.

Total French producer prices were unchanged in August and up 3.1% on year.  Italian consumer prices slid 0.2% in September and were 1.6% higher than a year earlier.  Sweden’s labor cost index rose 1.8% in the year to July.

Switzerland and Hungary posted second-quarter current account surpluses of CHF 17.1 billion and EUR 0.418 billion, respectively.

Taiwan’s central bank lifted its benchmark interest rate by 12.5 basis points to 1.5%, a result that was anticipated by analysts.

Two softer Australian data releases strengthened convictions that the Reserve Bank of Australia will keep its tightening policy on pause at next week’s policy meeting.  Private credit expanded just 0.1% in August and by 3.1% on year.  And building approvals fell 4.7% in August, defying forecasts of an increase.

New Zealand building permits sank 17.8% in August after rising 3.1% in July.

South Korean industrial production accelerated to an on-year increases of 17.1% in August from 15.5% in July.  The country’s index of leading economic indicators recorded on-year growth of 5.9% last month versus 6.7% in July.

Producer price inflation in South Africa unexpectedly picked up to 7.8% in August from 7.7% in July.  Consumer price inflation had eased further, in contrast.  South Africa also reported increases in August of credit growth to 3% from 2% and M3 to 4.4% from 3.7%.  The central bank rate was eased earlier this month.

Scheduled U.S. data today include the final revision of 2Q GDP, weekly jobless claims, mid-western PMI-manufacturing indices, and the K.C. Fed index.  Canada reports monthly GDP, and Euroland finance ministers will be meeting.  Tomorrow begins the second half of Japan’s fiscal year and the potential for a change in underlying Japanese net capital flows.

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

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