Softer Commodity-Sensitive Currencies and Equities Ahead of U.S. Labor Survey

October 8, 2010

The dollar rose 1.0% and 0.7% against the Australian and New Zealand dollars and shows gains of 0.3% against the euro and 0.2% versus the loonie.  The dollar is steady against the yen and sterling but down by 0.3% against the yuan after Chinese markets opened for the first time this week.  U.S. Treasury markets will close early today ahead of the 3-day Columbus Day weekend but not before September labor statistics are released.  Forecasts of non-farm payroll jobs are centered around zero, and the jobless rate is likely to be higher than in August.

Equities shot up 3.7% in China in a catching up move but fell in most other markets despite Alcoa’s better-than-expected earnings last quarter, with drops of 1.1% in Indonesia, 1.0% in Japan, 0.8% in Thailand, 0.5% in Taiwan, 0.3% in India and 0.2% in South Korea and Australia.  Stocks in Europe have dropped so far by 0.7% in London and Paris and by 0.4% in Frankfurt.

Sovereign bond yields are mixed.  Ten-year German bunds firmed 2 basis points.  British gilts slipped 3 basis points, and Japanese JGBs are steady.

Oil prices declined 1.4% to $80.55 per barrel, while gold fell by 0.5% to $1327.80 per troy ounce.

Japan’s economy watchers index weakened much more sharply than forecast to 41.2 in September, an 8-month low, from 45.1 in August and 49.8 in July.  Officials downgraded their assessment of the economy.

Japan’s current account surplus of JPY 1114 billion in August was 5.8% smaller than a year earlier.  The merchandise trade surplus was only JPY 196 billion, as export growth slowed to 16.5% from 24.7% in the year to July.  The seasonally adjusted current account surplus contracted 19.5% on month to JPY 1179 billion as exports fell by 6.5% below July’s level, while imports edged up 0.5%.  Japan’s Basic Balance (current account plus portfolio and direct investment) swung to a JPY 5.27 trillion deficit in August from a JPY 1.36 trillion surplus in July.  August 2009 had seen a JPY 0.83 trillion deficit.

Japanese stock and bond transactions generated a JPY 2.26 trillion outflow in September, as Japanese residents bought JPY 2.85 trillion of foreign bonds.

Japanese corporate bankruptcies in the first half of the current fiscal year were 15.2% lower than a year before.

On-year Malaysian export and import growth in August of 10.6% and 16.5% was less than anticipated.

Moody’s is considering an upgrade in China’s credit rating.

Peru’s central bank officials late Thursday surprised pundits by not increasing their 3.0% reference rate.  Concern that such a move might accelerate the sol’s appreciation was a likely consideration.  There are ways to engage in currency warfare beyond the conduct of intervention. 

However, intervention is clearly the most provocative weapon, and Japan’s Finance Minister Noda again hinted that more intervention to contain yen strength remains possible.  Minutes from the Bank of Japan Board meetings on August 30 and September 6-7 revealed rising worries that a stronger yen will hurt exports, industrial output and general confidence.

Australia’s finance minister, by contrast, expressed the view that a rising Aussie dollar reflects market confidence in Australia’s economy, and the Reserve Bank’s Deputy Governor Battellino reiterated the view that monetary policy in Australia will be tightened further if the economy continues to expand as officials anticipate such will.

Britain’s National Institute of Economic and Social Research estimates that real GDP growth slowed to 0.5% last quarter from 1.2% in 2Q.  The government’s first GDP estimate is due on October 26.  U.K. producer output prices firmed 0.3% on month and 4.4% on year in September.  The core rate held steady at 4.6%.  These results were a shade higher than forecast.  Producer input prices increased 0.7% from August and by 9.5% from a year earlier, accelerating from a 12-month increase of 8.7% in August.

Seasonally adjusted Swiss unemployment edged down to 3.7% in September from 3.8% in August.

Germany’s current account surplus of just EUR 4.6 billion in August was significantly less than forecast and compared with EUR 9.5 billion per month in the first seven months of the year and EUR 5.1 billion in August 2009.  Some of the shrinkage reflects summer tourism.  The seasonally adjusted trade surplus of EUR 11.7 billion compared to EUR 12.6 billion in July and a monthly average of EUR 12.1 billion in 2Q and EUR 11.4 billion in 1Q10.  But seasonally adjusted goods exports slid 0.4% on month after dropping by 1.6% in July.

German real manufacturing sales were 10.8% greater than a year earlier in August and up 10.1% in January-August.

Swedish industrial orders were 13.1% greater than a year earlier in August, up from 11.3% in the year to July.  Industrial production posted a 9.7% rise from a year before, down from 13.2% in the year to July.

The French budget deficit of EUR 122 billion in August was 4.2% smaller than a year earlier.  Revenues advanced 19.8% on year.

Turkish industrial production rose 2.7% in August and accelerated to a 12-month gain of 11.0% from 8.6% in July.

Dutch industrial output climbed 0.8% in August and were 7.0% greater than a year earlier.  Industrial sales posted a 15% on-year rise.

Canadian labor statistics for September, which get released 90 minutes ahead of the U.S. report, were mixed but on the whole not as good as hoped.  While the unemployment rate dipped returned to 8.0% as expected from 8.1% in August, 8.0% in July and 7.9% in June, jobs fell for the second time in three months.  The decline of 6.6K reflected a 43.7K decrease in part-time workers.

Canada also releases housing starts today, and the Bank of Canada’s senior loan officer and business outlook surveys will be published.  Besides the Labor Department’s monthly jobs report, the U.S. reports wholesale inventories.

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

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