Euro Up Despite Geithner Remarks

October 21, 2010

U.S. Treasury Secretary Geithner reiterated that the dollar is fairly valued against the yen and euro.  Nonetheless, the euro hit $1.4052 today versus a low of $1.3698 yesterday and on balance is 0.5% stronger than Wednesday’s close.  The dollar also eased 0.4% against the Canadian dollar, and 0.1% relative to the yen, Australian dollar, and Swiss franc.  The dollar firmed 0.2% against the kiwi and is steady relative to the yuan following the release of many Chinese statistics.

Sterling fell 0.4% against the dollar.  Worse-than-forecast British retail sales strengthen the likelihood that the Bank of England raises its asset purchase ceiling.

Pacific Basin equities were mixed but mostly up, with gains of 2.0% in India, 1.4% in the Philippines, 0.7% in New Zealand, 0.3% in Indonesia, Malaysia and Sri Lanka, 0.4% in Hong Kong and 0.2% in South Korea.  China’s market fell 0.7%, while Singapore’s lost 0.5%.  European equities got a boost from PMI data, with gains thus far of 0.7% in France and Germany and 0.6% in Britain.

Ten-year German bunds edged another two basis points higher and to within two basis points of the 10-year Treasury yield.  Those instruments carried a 38-basis point rate spread as recently as August 25.  10-year British gilt yields dropped by six basis points, and the 10-year JGB slid one basis point.

Oil slipped 0.3% to $82.27 per barrel, while gold rose 0.2% to $1346.20 per ounce.

A rumor surfaced that a statement to be released after the weekend meeting of G20 finance ministers in Korea will take a joint stand against competitive currency devaluations.  But how would such be enforced?  Brazil’s contingent isn’t even attending the meeting, believing that nothing good is likely to emerge.

Released Chinese data showed

  • On-year third-quarter GDP growth of 9.6% versus forecasts of 9.5% and outcomes of 10.3% in 2Q and 11.8% in 1Q.  January-September GDP was 10.6% higher than a year earlier, which is about a percentage point more than officials had sought.
  • Consumer price inflation in September edged up a tenth to 3.6%, most since October 2008.  Officials target 3.0%, and the average rate in January-September has been 2.9%.  CPI inflation started this year at a lowly 1.5% in January.
  • Producer prices posted a 4.3% 12-month rise in September, same as in August and below the January-September mean pace of 5.5%.
  • Industrial production was weaker than forecast, printing at a 12-month rise of 13.3% after 13.9% in August and 18.1% last March.  The increases slowed from 15.9% in 2Q to 13.5% in 3Q.
  • Fixed asset investment continues to edge lower, with growth of 24.5% in January-September versus 24.8% in January-August and 26.4% in the first quarter of 2010.
  • Retail sales increased 18.8% in the year to September, a shade faster than expectations of 18.5% and August’s 18.7% print.

As expected, Brazil’s Selic interest rate was left steady at 10.75%.

Preliminary purchasing manager indices for Euroland, Germany, and France show sustained growth as 4Q began but at a slower pace than in the first half of 2010.  Figures above 50.0 connote expanding activity.

  • The euro area’s composite index of 53.4 in October was down from 54.1 in September, at a 12-month low, and consistent with non-annualized GDP growth of 0.3%.  The manufacturing PMI recovered 0.4 points to a 2-month high of 54.1.  The services index fell to 53.2 from 54.1 in September and 55.8 in July, indicating mounting dependence on export-intensive manufacturing.
  • The French composite index slumped to a 13-month low of 55.3 in October from 58.1 in September and 59.5 in August.  Weakness was most pronounced in services, down 2.9 points to 55.3.  Manufacturing fell to 55.2 from 56.0 in September.
  • Germany’s results were better than feared.  The composite index recovered 1.3 points to 56.0.  Manufacturing went up a point to 56.1, and services rebounded 1.7 points to 56.6.  All three readings were at two-month highs.

Business confidence in France recovered three points in October to 102 according to the government statistical agency.  Analysts had forecast a one-point further dip.  That’s a surprising result in light of persistent street protests against proposed pension reform that would raise the retirement age to 62.

British retail sales volume fell 0.2% in September and was only 0.5% higher than a year earlier.  Sales still rose 1.0% in 3Q following a 1.6% increase in 2Q and a 2.2% drop in the first quarter.  British mortgage applications in September of 44K matched forecasts.

Swedish unemployment of 7.8% last month surpassed street expectations.  Dutch joblessness of 5.3% was about as expected.

Japan’s all-industry index, a monthly approximation of GDP growth, fell 0.4% in August but was 1.0% higher in July-August than the 2Q level.  Both industrial production (down 0.5%) and services (off 0.2) fell in the month, whereas construction and public spending posted increases of 2.0% and 0.5%.  The all-industry index was 3.7% greater than a year earlier. 

The Bank of Japan’s senior loan officer survey produced a diffusion index of minus five for corporate loan demand after minus 17 in the prior survey.  Household loan demand swung to plus one from minus two.

Switzerland’s ZEW expectations index, a gauge of investor confidence, worsened to minus 27.5 in October from minus 5.1 in September.  Swiss trade generated a CHF 1.7 billion surplus last month, and M3 growth accelerated to 6.8% on year in September from 6.4% in the year to August.

Hong Kong CPI inflation of 2.6% in September was less than assumed.

The United States releases weekly jobless claims figures, the Philly Fed index and the index of leading economic indicators. Canada’s LEI index also arrives today.

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

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