New Wave of Risk Aversion

October 12, 2010

Typical of a more risk adverse market, the dollar is higher except against the yen and Swissy.  Stocks, commodity prices and sovereign bond yields are lower. 

After a three-day weekend, the Nikkei dropped 2.1%.  The Paris Cac, British Ftse and German Dax currently show declines of 1.3%, 0.9%, and 0.6%.  Equities also fell by 1.7% in Australia, 1.1% in Taiwan, 1.3% in South Korea, 3.2% in Sri Lanka, 1.2% in the Philippines, 0.9% in India and 0.4% in Hong Kong.  The Asian Pacific MSCI index had its worst day in seven weeks.

Chinese stocks, up 1.3%, bucked the downtrend, but a 2-month 50-basis point increase of reserve requirements on six Chinese banks has rattled investors in the region.  Thai officials have raised a tax on foreign purchases of bonds in hopes of tempering upward pressure on the baht.  After several up sessions, the yuan settled back 0.2% against the dollar.

The dollar lost 0.3% against the Swiss franc and 0.2% versus the yen, which touched a 15-year low of 81.38/USD on Monday.  Otherwise, the dollar has gained 0.5% against the euro, 0.3% relative to the Australian dollar, and 0.2% versus the kiwi, Canadian dollar and sterling. 

10-year sovereign bond yields have fallen by five basis points each in Germany and Britain and by two basis points to 0.86% in Japan.

Oil and gold prices fell by 1.1% and 0.9% to $81.29 per barrel and $1342.90 per ounce.

Consumer confidence in Japan slid 1.2 points to a six-month low of 41.2 in September.  The recent peak of 43.5 was in June.

According to British Retail Consortium data, same-store sales were only 0.5% higher in September than a year earlier, and total sales went up 2.2%.

The Royal Institute of Chartered Surveyors U.K. house price balance index weakened to minus 36 last month from minus 32 in August, the biggest deterioration in 16 months.  The Department of Communities and Local Government’s house price index was 8.3% higher in August than a year before.

U.K. consumer prices were 3.1% higher than a year before in September, the same 12-month pace of inflation as seen in July and August.  Core consumer prices were flat on month and up 2.7% on year.RPI inflation dipped a tenth to 4.6%.  Miles, a member of the Bank of England Monetary Policy Committee, warned that consumer price inflation, which has been 3.0% or higher each month so far of 2010, will get a new boost when value added taxes rise in January.

The British merchandise trade deficit surpassed GBP 8.0 billion in August for the third time in four months, printing at GBP 8.227 billion.  Export volumes fell 1.2% on month.  The goods and services deficit was GBP 4.643 billion, down from GBP 4.991 billion in July but above June’s GBP 4.058 billion shortfall.

Final German consumer price figures confirmed a dip of 0.1% in September from August and a 12-month increase of 1.3%, most since November 2008.  Excluding food and energy, CPI inflation was very low again at 0.7%.  Non-energy CPI inflation on an annualized and seasonally adjusted basis was merely 0.9% in the six months to September, similar to rates of 0.8% in the six months to March 2010 and also 0.8% in the six months to September 2009.

German wholesale price inflation accelerated to a new cyclical high of 7.6% in September from 6.4% in August and 5.3% in July.  The on-month increase in September was 1.0%.

Swedish CPI inflation picked up to 1.4% last month from 0.9% in August.  Core CPI was at 1.8%.  Consumer prices in Hungary dipped 0.1% last month but were 3.8% higher than a year earlier.

Australia’s business confidence index dipped a point to +10 in September, while the business conditions index improved two points to +7.

The French current account deficit nearly doubled between July and August, reaching EUR 4.0 billion in the latter month.  Protest strikes against proposed pension cuts disrupted air and rail travel in France today.

Today’s main event will be the release of FOMC minutes, which investors hope will shed further light on the possibility and nature of a second round of quantitative easing by the Federal Reserve.  The IBD/TIPP optimism index, NFIB index of small business sentiment, and weekly chain store sales data are also due in the United States today.  Mexico and South Africa are scheduled to release industrial output figures.

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

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