EU Officials Scrambling to Defuse Irish Financial Strains

November 17, 2010

In a second day of meetings, Ecofin, EU finance ministers, seemed to be making progress on aid for Ireland.  Irish talks with the EU, IMF, and ECB start tomorrow. 

Overnight movements of the dollar were minuscule.  The euro is unchanged but remains softer than $1.35. The greenback is also unchanged on balance against the Canadian, New Zealand and Chinese currencies.  The dollar firmed 0.2% against the yen and 0.1% versus sterling and the Aussie dollar while dipping 0.1% against the Swiss franc.

Many equity markets in the Pacific Rim were closed for the Islamic holiday, Eid-al-Adha.  Stocks tumbled by another 2.1% in China, bringing their cumulative drop since November 8th to some 10%.  Equities fell by 2.0% in Hong Kong, 1.6% in Australia, 1.1% in Thailand, 0.8% in New Zealand, and 0.7% in the Philippines and Taiwan.  But Japan’s Nikkei edged 0.2% higher, and stocks in Europe have gained 0.6% in Germany, France, and Spain.

The 10-year JGB yield firmed two basis points, while the 10-year German bund and British gilt yields slid by one basis point each.  Ireland’s 10-year sovereign debt yield firmed five basis points.

Gold fell another 0.3% to $1335.00 per ounce, a drop of some 6% from its peak hit just over a week ago.  Oil eased 0.7% to $81.74, off 7% in the past three days.

Bank of England minutes from the November 3-4 meeting revealed a three-way split for the second month in a row among policymakers.  Even among the majority, which voted for no change in the 0.5% Bank Rate and GBP 200 billion limit for the asset purchase program, several members are more worried about the risk that expected inflation could creep higher given that CPI inflation will remain above 3% in the near term and in fact move higher before settling back in the longer term.  Adam Posen dissented in favor of hiking asset purchases by GBP 50 billion to GBP 250 billion, while Andrew Sentance recommended a 25-bp rate increase after noting higher commodity prices and survey evidence suggesting continuing decent economic growth in the final quarter of 2010.

Construction output in Euroland declined another 2.1% in September and by 3.4% (12.8% annualized) in the third quarter.  Like many other indicators, Germany is out of step with most other economies in the euro area.  Construction output rose 0.4% in Germany, but fell by 4.6% in Portugal, 3.7% in Spain, and 0.6% in the Netherlands.  Construction output in the whole region was 8.1% lower than a year earlier after a 7.3% drop in the year to August.

Japan’s index of leading economic indicators was revised downward to 98.6 in September from 98.9 reported initially.  The coincident index was revised 0.1 points lower to 102.0.

Australia’s quarterly wage cost index accelerated in the third quarter with an increase of 1.0% from 2Q and 3.6% from a year earlier.  Such had risen 0.8% on quarter and 3.1% on year in the second quarter.  The Australian Westpac-MI index of leading economic indicators slid 0.1% in September but was 4.6% higher than a year earlier.

South African retail sales rose 0.4% in September and 6.1% from a year earlier.

British monthly labor statistics were better than anticipated.  The claimant count of unemployment fell 3.7K in October, its first decline in three months, keeping the jobless rate on such a basis steady at 4.5%.  The more conventional and representative ILO jobless rate was 7.7% in the third quarter, down from 7.8% in the second quarter.  Wage earnings rose 2.0% on year in 3Q, up from gains of 1.7% in June-August and 0.8% in 2Q10.

Swedish capacity use advanced to 88.6% in 3Q10 from 86.9% in the second quarter.  Italy’s current account deficit in September was 62% wider than the August shortfall.  Finnish producer prices edged 0.1% higher in October and recorded a 7.3% 12-month advance. 

Scheduled U.S. data releases today feature the consumer price index, housing starts and permits, and weekly energy inventories.  Lockhart, Rosengren, and Bullard of the Federal Reserve are scheduled to speak.

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

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