One-Day Dollar Correction Out of Steam

November 9, 2010

The dollar had opened firmer this week on Monday and strengthened further overnight to 1.3824 per euro, but it relapsed subsequently to 1.3951 currently, a net slide of 0.2% since yesterday’s New York closing.  The dollar also shows net overnight losses of 0.6% against the Swissy, 0.7% versus the yen, and 0.3% against sterling and the Australian and Canadian dollars.  The kiwi is steady on balance, and the yuan has slipped back 0.1% against the greenback.

In the Pacific Rim, stocks fell by 1.0% in Hong Kong, 0.7% in China and Sri Lanka, and 0.8% in Australia, but they rose 1.0% in Indonesia and Pakistan, 0.4% in India, Malaysia, and Singapore, and 0.3% in South Korea.  The direction in Europe is more uniformly upward, with gains of 0.8%, 0.7%, and 0.6% so far in the Ftse, Cac40, and Dax.

Gold cut through the $1400 barrier like a knife.  After closing at $1403.20 yesterday, gold jumped another 1.1% to $1419.10 per ounce in early trading today.  In yet another indication of a risk appetite engendered by the Fed’s launch of QE2, oil prices advanced 0.4%.

Ten-year JGB and British gilt yields rose two and three basis points, while the 10-year German bund yield is a single basis point lower.

Several Japanese economic indicators were released:

  • Money and credit growth stayed weak in October.  M2 posted a 2.7% on-year advance versus a 2.8% rose in 3Q10.  M3 growth of 2.0% compared to 2.1% in the third quarter.  Broad liquidity growth was just 0.4% same as in the year to August and down from 0.5% in 3Q.  Loans fell 1.9% over the past 12 months after dropping 1.8% in the year to September.
  • A JPY 1.96 trillion current account surplus in September was 21% wider than forecast.  The JPY 8.36 trillion surplus in April-September (that is the first half of the fiscal year) was 13.9% greater than a year before.  The merchandise trade surplus was JPY 927 billion, 53% larger than in September 2009.  However, on-year export and import growth has slowed.  Exports were 15.9% higher than in September 2009 but posted on-year growth of 26.6% in the first fiscal half. 
  • The seasonally adjusted JPY 1.66 trillion current account surplus in September was 40.9% larger than in August.
  • The “basic balance,” which adds long-term capital to the current account, showed a JPY 1.966 trillion deficit in September versus a shortfall of JPY 4.84 trillion a year earlier.
  • Stock and bond transactions in October generated a net outflow of JPY 1.879 trillion.
  • The economy watchers index, a gauge of retail sector activity, weakened to a nine-month low of 40.2 in October from 41.2 in September and 45.1 in August.
  • There were 9.9% fewer bankruptcies in October than a year earlier, but such left debts that were 79.1% greater than bankruptcies in October 2009.

Australian business conditions and confidence dropped by five and two points respectively to +2 and +8 in October.

Chinese officials announced more measures to cool capital inflows.

South Korean producer price inflation accelerated further to a 22-month high in October of 5.0% from 4.0% in September despite a month-on-month uptick of just 0.1%.

In Britain, the Royal Institute of Chartered Surveyors house price balance worsened to an 18-month low of minus 49 in October from minus 36 the month before.  Analysts had anticipated a minus 38 reading. 

British industrial production rose 0.4% in September and 3.8% on year, roughly in line with expectations.  Industrial production was 3.3% greater than a year earlier in the third quarter, as the on-year increase of factory output rose to 5.3% from 3.6% in 2Q.

The U.K. goods and services trade deficit was GBP 4.57 billion in September and averaged GBP 4.76 billion per month last quarter, 13% wider than in 2Q10.  The merchandise trade deficit was again above GBP 8 billion in each month of the third quarter.

Final German CPI figures confirm that inflation remained steady at 1.3% in October.  Seasonally adjusted consumer prices rose 0.7% annualized over the past six reported months and by 0.9% at an annualized rate excluding energy.  German real manufacturing sales fell 1.3% in September but were 7.0% greater than a year earlier.  Sales so far this year are running 9.6% above January-September of 2009.  German insolvencies were 11.6% higher in August than a year earlier.  Consumer bankruptcies (up 21.4%) eclipsed the 1.6% rise in business bankruptcies.

French business sentiment, according to a Bank of France measure, improved unexpectedly to 103 in October from 102 in September.  France’s trade deficit of EUR 4.68 billion in September was 6% narrower than the August deficit but larger than analysts were anticipating. 

Dutch industrial output fell 1.4% in September but rose 13.5% on year.  Greek industrial production posted a 7.1% on-year drop in September.  There was some good news out of Eastern Europe.  The Czech CPI inflation of 2.0% in October was slightly less than expected, and Hungary’s trade surplus of EUR 548 million in September surpassed forecasts.

Swiss consumer confidence weakened unexpectedly to a reading of +7 in October.  This quarterly indicator had not been projected to change much from +16 reported in July.  Sweden is closed for holiday today.

Scheduled U.S. releases today cover wholesale inventories, the IBD/TIPP optimism index, and weekly chain store sales.  Canada reports house prices.  Mexico and Brazil release CPI data.

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

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