A Proposal from Geithner to the G20

October 22, 2010

Finance ministers and central bank chiefs from the Group of Twenty are meeting in Gyeongiu, South Korea.  U.S. Treasury Secretary Geithner has proposed a target for current account-to-GDP ratios, which the big surplus countries appear to be rejecting.  Market players doubt any significant breakthrough on currency management will emerge at this meeting but are in a defensive posture just in case.

The dollar is unchanged against the euro, sterling, Canadian dollar and yuan and has dipped by 0.2% against the yen and Australian dollar and by 0.1% versus the kiwi.  Weakest major currency of the day is the Swiss franc, down 0.6% against the dollar.

Stocks in the Pacific Rim rose 0.5% in Japan and Taiwan, 1.2% in South Korea, 0.9% in the Philippines, 0.8% in New Zealand, 0.6% in Australia and 0.5% in Taiwan.  Equities fell 0.5% in India and 0.6% in Hong Kong.  In Europe, the British Ftse is off 0.5%, and the German Dax and Paris Cac have slid 0.2%.

Ten-year German bund and British gilt yields slipped two and one basis points, while the 10-year JGB edged up a basis point to 0.90%.

Oil prices firmed 0.5% to $80.93 per barrel, while gold prices fell 0.5% to $1319.40 per ounce.

More evidence emerged of a resilient German economy that hasn’t faded in the second half of 2010.  On Tuesday the monthly release of the ZEW Institute index arrived with a current conditions component of investor sentiment printed at 72.6, up from 59.9 in September, 44.3 in August, and 14.6 in July.  The preliminary purchasing managers data released Thursday revealed monthly increases in manufacturing of 1.0 point to 56.1, services of 1.7 points to 56.6 and 1.3 points in the composite measure to 56.0.  Today’s piece of this upbeat picture comes from the IFO Institute, which reported an overall business climate in October of 107.6, a 41-month high and up from 106.8 in September, 101.9 in June and 92.0 in October 2009.  The current situation component was at 110.2 after 109.8 in September, while the expectations component advanced 1.2 points to 105.1.  Wholesale industry activity experienced the largest improvement in the latest month.  IFO also released its service sector business climate index, and this rose 0.9 to 21.4, as current conditions climbed four points to 28.0.

Revised budget deficit and debt ratios were released for most EU economies, Greece being a notable exception.  2009 deficit to GDP ratios ranged from 2.4% in Finland and 3.0% in Germany to 14.4% in Ireland, 11.4% in Britain, 11.1% in Spain, 9.3% in Portugal, 7.5% in France and 5.3% in Italy.  Germany (73.4%) was among many countries whose debt exceeded 60% of GDP last year.  Italy’s debt equaled 116% of GDP, and France’s was at 78.1%.  Ireland’s and Spain’s ratios of 65.5% and 53.2% were relatively low.

The quarterly French overall industrial demand survey produced a reading in October of 16, down from 21 in July but higher than April’s +9 or January’s +14 scores.

Italian retail sales were unchanged in August and up only 0.3% from a year earlier.  These results fell short of expectations.

Canadian consumer price inflation picked up to 1.9% in September from 1.7% in August, contrary to a downwardly revised projected inflation path released by the Bank of Canada ealier this week.  Core inflation, however, eased to 1.5% from 1.6% in August.  The seasonally adjusted CPI posted month-on-month increases in September of 0.3% for all items and 0.1% in the core index.

Norwegian existing home sales eased 0.5% last quarter.

Japanese same supermarket sales were 0.3% lower than a year earlier in September despite a 1.2% increase in food, the first rise for that component in 20 months.

Taiwan’s jobless rate held steady at 5.1% last month.  Malaysian CPI inflation of 1.8% in September was lower than anticipated.

No U.S. data releases are scheduled, but Plosser of the Fed will be speaking.  Canada also reports retail sales, and Belgium releases business sentiment.

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

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