Geithner Remark Lends Dollar Slight Support

October 19, 2010

The dollar rose 0.6% against sterling, 0.4% versus the kiwi, 0.3% relative to the Canadian dollar, 0.2% against the yen, euro and Australian dollar, and 0.1% against the Swissy.  The yuan is steady against the dollar.

Today marks the 23rd anniversary of the Dow’s 22.6% crash of 1987.  Conditions are calm. Stocks advanced 2.1% in China, 1.3% in Hong Kong, 1.2% in Sri Lanka, 0.7% in Indonesia, 0.5% in Thailand, and 0.4% in Singapore, but share prices fell by 0.9% in India, 0.6% in the Philippines, and 1.0% in South Korea.  Japan’s Nikkei closed up 0.4%, and the German Dax and British Ftse have edged 0.1% higher.

Ten-year German bund and British gilt yields firmed by four basis points, and the 10-year JGB is one basis point higher.

Oil and gold prices slid by 0.6% and 0.3% to $82.60 per barrel and $1368.40 per ounce.

In his first dollar comment in some time, U.S. Treasury Secretary Geithner called devaluation not a “viable” option.

Minutes from the Reserve Bank of Australia’s October policy meeting warn of upward pressure on inflation and indicate that the decision not to raise the 4.5% Official Cash Rate because of external downside risks was not made easily.  The minutes put investors on guard for a possible rate increase in November or December.

The Japanese government downgraded its economic assessment to “pausing recently” from “continues picking up and moving toward self-sustaining recovery.”  Exports and industrial output were downgraded, and risks from the elevated yen and slower growth in other economies were highlighted.  This was the first downgrade of the overall assessment in more than a year.

Unemployment in Hong Kong averaged 4.2% in the third quarter, same as the pace in June-August but down from 4.6% in the second quarter.

The ZEW expectations index, a gauge of investor sentiment toward Germany, weakened to minus 7.2 in October from minus 4.3 in September, +14.0 in August and +21.2 in July.  However, the current conditions index improved to 72.6 from 59.9 in September, 44.2 in August and 14.6 in July.  Germany is still performing well but expected to slow.  The ZEW expectations index for the whole euro area printed at 1.8, down from 4.4 in September and 15.8 in August, while current conditions rose to minus 1.1 from minus 6.3 in September and minus 13.0 in August.

Euroland construction output fell 0.4% in August.  Construction had risen 2.0% in the second quarter but was 2.4% lower in July-August than in 2Q.  Construction output was also 8.5% lower than a year earlier.  The 12-month rates of change ranged from +1.7% in Germany to minus 34.7% in Spain.

Euroland’s current account on a seasonally adjusted basis showed a deficit of EUR 7.5 billion in August, the largest shortfall in 11 months and the eighth deficit in a row.  However, the EUR 50.8 billion deficit over the past twelve reported months was only half as large as the deficit of EUR 103.5 billion in the 12 months to August 2009.

The governments of Spain and Greece sold T-bills reasonably easily today, which helped to depress risk aversion.  Those auctions had a bigger effect on sentiment than new union strikes in France to protest pension reforms.

Dutch consumer spending recovered to an on-year increase of 1.6% in August after gains of 0.2% in July and 1.5% in June.

In Britain, the CBI survey of business trends produced a sharply weaker overall index of minus 28 this month after minus 17 in September and minus 14 in August.  It was the worst result in six months.

Scheduled U.S. data today include weekly chain store sales and monthly housing starts.  No fewer than five Fed officials speak publicly today.  ECB President Trichet also will be making remarks, as will Bank of England Governor King.  The central banks of Canada and Sweden have scheduled interest rate policy announcements in which neither is likely to make a change.  See preview. 

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

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