Dollar Recovers Partly at Start of New Week

October 4, 2010

The dollar is higher, European stocks are lower, China was closed, and markets await central bank decisions and U.S. labor market data.  British, U.S. and Japanese travelers are being warned about escalated dangers of terrorism in continental Europe at hotels, modes of transportation, and other places where tourists might be.

The dollar recouped 0.7% against the euro, 0.5% relative to the Aussie dollar, 0.4% versus the kiwi, 0.3% against sterling and 0.2% against the Canadian dollar.  Dollar/yen is steady at 83.32, and dollar/Swissy edged 0.1% lower.  Nobel Laureate Professor Joseph Stiglitz called the euro’s prospects as a currency bleak and expressed some doubt that it would survive.  Investors remain suspicious that Japanese authorities may be manipulating the yen behind the scenes.

After last week’s poor performance in European equities, the German Dax and Paris Cac are down by a further 1.1%, and the British Ftse is off 0.5%.  In the Pacific Rim where China will be shut until Friday, stocks rose 1.0% in Australia, 1.2% in Hong Kong, 0.9% in Singapore, 0.6% in Indonesia, and 0.5% in New Zealand, but equities eased 0.3% in Japan, 0.8% in Sri Lanka, and 1.5% in Thailand.

Ten-year sovereign bond yields fell 5 basis points in Great Britain, 4 bps in Germany, and 1 basis point in Japan.

Drops of 0.8% in oil prices to $80.97 per barrel and 0.1% in gold prices to $1316.40 per ounce also signaled a more guarded investor mood.

Australia and Japan are first up in a list of important interest rate decisions due this week.  Investors are split over whether the Reserve Bank of Australia raises rates.  The Bank of Japan is expected to announce some kind of quantitative easing move, but the question is whether such will be cosmetic or meaningful.  The BOJ usually opts for the latter.

With great fanfare, Japanese officials said in mid-September that intervention then, which was believed to have totaled about $20 billion, would not be sterilized, that is reabsorbed from the money market by other operations.  However, Japanese monetary base figures released today cast doubt on that promise.  The base in September was 5.8% greater than a year earlier and JPY 4.3 trillion less than in August.  The monetary base also rose 5.8% on year in the whole third quarter, the same pace as in 2009 as a whole. 

Japanese wage earnings were unchanged in August from a year earlier.  That was down from a 1.4% increase in July, as overtime pay growth slowed to 10.8% from 12.4%.  It will be hard for personal consumption to gain any traction.

Hong Kong retail sales volume growth slowed less than expected to 14.7% in August from 16.2% in July.

The Greek government unveils its 2011 budget proposals today.  Excessive sovereign debt in Europe and the drag of forced fiscal austerity to rein in high bond yields remain big investor concerns.  Nonetheless, the Sentix index of investor sentiment toward Euroland rose to 8.8 in October from 7.6 in September.

The Italian budget deficit in 1H10 equaled 6.1% of GDP.  Debt in that country is running around 115% of GDP.

Euroland producer price inflation settled back to 3.6% in August from 4.0% in July.  The PPI was 0.1% higher in August than July but 0.6% greater in July-August than its 2Q10 level. 

The British construction-sector purchasing managers index recovered to 53.8 in September from 52.1 in August but posted an average reading in the third quarter of 53.3 after 58.4 in the second quarter.  The strongest rate of decline in construction jobs was seen in the past six months, and business expectations weakened sharply.

German new car registrations were 18% lower in September than a year before after tumbling 27% in the year to August.

Romanian producer prices firmed 0.4% in August but slowed to an on-year pace of 6.7% from 6.9% in July.

Spanish unemployment increased 48K in September and to more than 4 million people.  There were 8.3% more unemployed workers than in September 2009.

Turkish consumer prices rose 1.2% on month and accelerated to a 12-month increase of 9.2% in September from 8.3% in August and 7.6% in July.  Producer prices climbed 0.5% on month and 8.9% on year, down from 9.0% in August.

New Zealand’s commodity price index rebounded 2.9% in September following three straight monthly drops and was merely 1% below May’s peak.

South African motor vehicle sales growth slowed to 16.6% on year in September from 36.9% in August.  U.S. auto sales growth in September was reported on Friday to be 28.5% greater than a year before in September.

U.S. factory orders and pending home sales data will be reported today, as will Mexican consumer confidence.

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

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