Investors Less Uncomfortable about China’s Rate Hike

October 20, 2010

In a catch-up move to yesterday’s blood-letting in other markets, Japan’s Nikkei lost 1.7%, and stocks fell by 0.9% in Hong Kong, 0.7% in Australia, 0.6% in Sri Lanka and India, 0.5% in New Zealand and 0.4% in Singapore and Indonesia.  However, a rise of 0.6% in Chinese equities had a calming effect, and stocks also went up 1.0% in Taiwan and 0.7% in South Korea.  This better tone carried into Europe, where the Paris Cac has climbed 0.6%, and the German Dax and British Ftse show 0.3% gains.

The dollar likewise gave back part of its post-China advances.  The greenback softened 0.9% against the Australian dollar, 0.7% versus the euro and Swiss franc, 0.4% against the kiwi, 0.3% relative to the Canadian dollar and yen and 0.1% versus sterling.  The yuan edged 0.1% higher.

Oil and gold prices recovered 1.0% and 0.5% to $80.31 per barrel and $1342.80 per ounce.

Ten-year German bund and Japanese JGB yields are two and one basis points higher.  The 10-year British gilt yield slid one basis point, however.

Ahead of a meeting of Group of Twenty finance ministers at end-week, Nishimura of the Bank of Japan expressed concern for his economy due to yen appreciation.

The Bank of Thailand left its key interest rate at 1.75% but implied more rate hikes will be coming and expressed acceptance for baht appreciation.

The Bank of England split three ways at this months policy meeting according to meeting minutes released this morning.  Andrew Sentance again voted for an immediate 25-basis point rate hike, but Adam Posen dissented in favor of a GBP 50 billion increase in the asset purchase target to GBP 250 billion.  Other policymakers siding with the majority vote to make no changes agreed that the possibility of additional stimulus in the future is rising.

Details of what British spending programs will be cut will be unveiled today in the ruling coalition’s comprehensive spending review.  The reductions will be much bigger than any other country is attempting.  Ahead of that event, September public finance data proved greater than forecast.  The public sector net cash requirement shot up to GBP 20.2 billion, and the public sector net borrowing was at GBP 15.6 billion.  Debt reached 64.6% of GDP, up from 58.5% a year earlier.

On-year British M4 growth slowed to 0.9% in September from 1.9% in August, 2.4% in July and 3.2% in June.  M4 contracted month-on- month just as such had in August.

German producer prices firmed 0.3% in September and posted a 12-month increase of 3.9% compared to 3.2% in August and 3.7% in July.  The PPI fell by 4.2% in 2009 after rising 5.5% in 2008.

Italian industrial orders rose 7.3% in August, and sales went up 2.8%.  These results were better than forecast. 

An improvement in Dutch consumer confidence to minus 10 in October from minus 17 in September also came as a surprise.

The Greek current account deficit of EUR 259 million in August was more than 80% smaller than July’s deficit and 44.5% lower than a year earlier.

Japan’s index of leading economic indicators fell to 99.5 in August from 100.0 in July, producing another sub-50 diffusion index reading of 45.5 after 36.4 in July and 33.3 in June.

Japanese convenience store sales, which posted on-year declines from May 2009 until June 2010, recorded a much bigger advance of 12.9% in the year to September than that of 1% in August.  Taiwanese export orders growth slowed to 16.7% from a year earlier in September after a gain of 23.3% in the year to August.  September’s rise was the smallest since September 2009.

U.S. mortgage applications slumped 11% in the week of October 11, their biggest drop for any week since June.

The Fed’s Beige Book, which documents regional conditions, and the Bank of Canada’s Monetary Policy Report get released today.  Canadian wholesale turnover and U.S. oil inventory data arrive.

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



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