Focus on China and Bernanke

November 19, 2010

The People’s Bank of China raised reserve requirements for the fifth time in 2010.  The requirement for big banks will climb another 50 basis points to 18.5% effective November 29.  The backdrop for this tightening was evidence of a greater-than-forecast acceleration of CPI inflation to 4.4%.  A move like this can be viewed as substituting for a larger cave-in on U.S. demands for faster yuan appreciation.

As the keynote speaker at the ECB’s sixth annual central banking conference, Fed Chairman Bernanke warned again that large current account surpluses and deficits cannot coincide in a two-speed global economy forever and urged surplus nations to permit their currencies to appreciate.  The ECB’s Stark at the same symposium warned against debt monetization and endorsed monetary policies that are responsive to potential asset price bubbles.

The euro and Swiss franc recovered by a further 0.6% against the dollar, which also fell by 0.4% against the yen.  The Aussie dollar is 0.4% weaker, and all other major currency relationships moved barely overnight.

China’s reserve requirement hike was made after Asian equity trading, which saw China’s market close with a 1.0% gain.  In other Pacific Rim bourses, declines occurred of 1.7% in India, 0.6% in Singapore, 0.4% in New Zealand, 0.2% in Australia and 0.1% in Hong Kong.  Stocks gained 0.7% in South Korea, 1.3% in Indonesia, 2.0% in the Philippines and 0.1% in Japan.  European stocks have faltered on the euro’s rise and worries about further sovereign debt contagion to Portugal and beyond.  The British Ftse, Paris Cac and German Dax lost 0.9%, 0.4%, and 0.2%.

Ten-year British gilt and Japanese JGB yields firmed by a basis point.

Oil and gold prices rose by 0.7% and 0.5% to $82.41 per barrel and $1359.50 per ounce.

Japan’s all-industry index, a supply-side monthly proxy for gross domestic product, fell 0.8% in September on top of of a 0.2% decline in August.  The all-industry index was 2.6% above its year-earlier level but 0.6% lower than the third-quarter average, which signals a loss of momentum heading into the final quarter.

German producer prices in October rose 0.4% and were 4.3% higher than a year earlier, the greatest on-year advance so far in 2010.  On-year PPI inflation had been negative until March.  The PPI fell 4.2% in 2009 after rising 5.5% in 2008.

Italian industrial orders and sales posted drops in September of 1.2% and 0.2% but remained well above September 2009 levels.  Dutch consumer spending was 1.5% higher in September than a year before.

New Zealand nominal GDP increased only 1.2% in the fiscal year to March 2010, less than even the 1.8% rise in the year to March 2009.

Malaysia’s index of leading economic indicators was unchanged in September, and the coincident index fell by 0.5%. Taiwanese export orders were 12.3% higher in October than a year earlier.

With no key economic indicators due later today, the main focus will be on remarks by other officials at the ECB conference in Frankfurt.  Colombia has an interest rate announcement, and Belgian consumer confidence arrives. 

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



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