Greenspan and Geithner Duke it Out in Verbal Currency Wars

November 11, 2010

With G20 leaders meeting in Seoul, South Korea, bond market strains on the euro area peripherals — Ireland, Portugal, Greece, Spain and Italy — intensified.  The Irish-German ten-year spread widened past 650 basis points.  ECB member Stark denied the fiscal problems of these members constitutes a euro crisis per se.  Another ECB member reiterated that the ECB could begin to raise its benchmark rates before the removal of unconventional measures is fully completed.

Former Fed Chairman Greenspan wrote in today’s FT that the United States, as well as China, are intentionally devaluing their currencies.  As to the first of these claims, Treasury Secretary Geithner fired back: no, no, no, you’re wrong.  Geithner blames dollar losses since June on a reversal of safe-haven flows associated with returning confidence in the global economy.  Really?

Obama and Hu met bilaterally today for over an hour, reportedly talking mostly about currency issues.  Moody’s upgraded China’s credit rating.

The U.S. fixed-income market is closed today for Veteran’s Day, commemorating the 92nd anniversary of the Armistice that ended the First World War, but the stock market will be open.  Canada, Belgium, and France will be closed.

The dollar advanced 0.6% against the euro and 0.2% relative to the Canadian dollar.  The dollar at the same time has lost 0.4% against the Australian dollar, 0.3% against the Chinese yuan, and 0.1% relative to sterling, the yen, and Swiss franc.  The kiwi is steady against its U.S. counterpart.

Gold and oil prices rebounded 1.1% and 0.6% to $1414.10 per ounce and $88.36 per barrel.  Speculators are starting to imagine a triple-digit oil price again.

The 10-year JGB yield edged up another basis point to 1.01%, and 10-year bunds climbed two basis points.  Gilts were steady.

Some equities in the Pacific Rim chalked up significant overnight declines, such as South Korea where G20 leaders are meeting (off 2.7%), India (1.4%), the Philippines (1.3%), Thailand (1.2%) and Malaysia (0.9%).  But stocks rose by 0.8% in Hong Kong, 0.6% in Australia and 0.3% in China and Japan.  The German Dax and British Ftse each are trading 0.1% lower.

More unsettling figures were released in Japan.  Core domestic private machinery orders slumped 10.3% in September and are projected to fall 9.8% this quarter after a surprising 9.6% advance in 3Q.  Foreign machinery orders plunged 16.4% in the latest month.  The Reuters Tankan indices, a monthly gauge that mimics movements of the Bank of Japan’s quarterly data series, fell 3 points to a four-month low of +16 in November in the case of manufacturing and by 7 points to a six-month low of minus 13 for services.  Survey participants anticipate readings in February 2011 of minus 3 in manufacturing (implying renewed contraction of activity) and minus 14 for services.

Domestic corporate goods prices in Japan rose 0.2% in October and by 0.9% on year, which was the greatest two-year advance in almost two years.

China released a bunch of data.  Most significantly, CPI inflation accelerated to a roughly two-year high of 4.4% in October from 3.6% in September and 1.5% in January.  Likewise, PPI inflation rose to 5.0% from 4.3% in September.  Both accelerations surpassed analyst expectations and bolster the likelihood of another interest rate hike this year.  China reports economic figures in on-year, not month-on-month, comparisons.  In other released data for October,

  • Bank lending increased by 588 billion yuan and 19.3% from a year earlier.  That’s almost as much as the Yuan 596 billion rise in September (18.5% on year) and surpasses forecasts.
  • M2 grew 19.3%, up from 19.0% in September and 17.6% in July.
  • Industrial production growth, 13.1%, was a touch less than forecast and down from 13.3% in September and 13.9% in August.
  • Retail sales went up 18.6%, similar to September’s 18.8% and August’s 18.7%.
  • Fixed asset investment advanced 24.4% in January-October, similar to a 25.5% increase over the first nine months of the year.

Australian labor statistics for last month were sharply mixed and unforeseen.  On the one hand, the jobless rate rose to 5.4% from 5.1% instead of dipping by a further tenth of a percentage point.  On the other hand, 29.7K new jobs were created, albeit all of a part-time nature.  Jobs have climbed by a sizzling 3.4% over the past twelve months and at a 4.1% annualized rate during the last three months, and five-sixths of the 3-month gain consisted of full-time workers.  Hours worked increased 0.5% in October, so on balance the data are quite decent.

The MI gauge of expected one-year CPI inflation in Australia eased sharply to 3.1% in November from 3.8% in October.  A majority of analysts do not expect an eighth rate increase by the Reserve Bank of Australia in December.  Tightening should resume early in 2011.

New Zealand’s manufacturing purchasing managers index edged closer to the 50-breakeven point, climbing to 49.7 in October from 49.2 in September.  The orders sub-component went up 0.7 to 51.0.  New Zealand food prices advanced 2.2% last month.

An agreement was reached on an Iraqi government coalition eight months after elections in that country.  It remains to be seen if this quells the recent pick-up of violence there.

Norwegian consumer prices firmed 0.1% last month and by 2.0% from October 2009.  Core inflation edged up a tenth to 1.0%.  PPI inflation remained high at 18.0%, although down from September’s 19.7% pace.  Swedish consumer prices rose 0.3% in October and by 1.5% from a year before.  Core inflation stood at 1.8% in Sweden.  Sweden posted a 4.5% jobless rate last month. Greek unemployment pushed upward to 12.2%. 

Spanish GDP didn’t grow last quarter, but it didn’t drop either.  The zero quarterly rate in Euroland’s fourth largest economy left on-year growth at 0.2%, the first positive rate since 3Q08.

The ECB Bulletin was released, rehashing Trichet’s press conference remarks from last week.  The European Central Bank’s latest published survey of private analyst forecasts showed upward revisions in expected GDP growth to 1.6% this year and 1.5% in 2010.

Central bank interest rate announcements are scheduled today in Turkey and Peru.  No U.S. or Canadian economic figures get reported today.

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

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