Markets Rattled by Two Persistent Risks: Korea and Ezone Debt

November 26, 2010

The dollar advanced sharply against the euro and commodity-sensitive currencies, with gains of 1.9% against the Australian dollar, 1.6% versus the kiwi, 1.4% relative to the Canadian dollar and 1.2% against the euro.  Other dollar rises overnight were much milder: 0.5% against sterling, 0.3% against the yen, 0.2% vis-a-vis the Swiss franc and no change relative to the yuan.

Stocks in Europe have fallen 1.6% in France and Britain and 1.3% in Germany so far.  Earlier trading saw equities lose 1.6% in Indonesia, 1.1% in the Philippines, 1.3% in South Korea, 0.9% in China and India, 0.8% in Hong Kong, and 0.5% in Sri Lanka, Taiwan and Thailand.

Ten-year JGB yields advanced four basis points to 1.20%, a level not seen since June 22, but ten-year German bunds and British gilt yields fell by three and six basis points.

Peripheral bond spreads versus German bunds have widened.  Portugal is in the market’s cross-hairs, and Spain’s spread reached a record.  The Irish 10-year yield exceeded 9.0% for the first time in 15 years.

South and North Korean verbal saber-rattling continued to intensify.

Oil and gold prices sank by 1.1% and 0.7% to $82.98 per barrel and $1365.10 per troy ounce.

In October Japanese consumer prices (+0.2%) posted a positive on-year change for the first time since the year to November 2008.  The seasonally adjusted CPI went up 0.5% on top of of 0.3% September increase.  Non-food consumer prices and the index excluding food and energy increased by 0.4% and 0.6% on the month and posted considerably smaller on-year drops of 0.6% and 0.8%.  These developments had been foretold by Tokyo consumer prices released a month ago and were attributable mostly to a 6.9% unadjusted monthly jump in the goods category labeled miscellaneous.  Tokyo’s CPI in November was unchanged on month.

German import prices dipped 0.2% in October but were 9.2% higher in October than a year earlier.  On-year import price inflation has averaged 9.3% since June and 7.5% excluding oil.  German export prices dipped 0.3% last month but posted a 12-month increase of 4.3%.

Five German states reported November CPI figures, suggesting a monthly uptick of 0.1% and marginally higher on-year inflation than posted in October.  Core inflation continues to run below headline inflation.

The ECB released October money and credit growth data.  M3 was 1.0% higher than a year earlier in October and up 1.1% in August-October.  Private credit was also 1.0% greater than a year earlier.  Lending to firms and for mortgages fell 0.3% and rose 3.6%, respectively.  The data signal neither deflation nor accelerating inflation.

In France, real household spending on manufactured goods sank 0.7% in October after a 1.6% increase in September.  Spending was 0.3% lower than a year earlier.

The Swiss index of leading economic indicators weakened to a reading of 2.12 in November from 2.21 in October and 2.18 in September.

Russia’s central bank refinancing rate was left steady at 7.75% as generally expected.  The Bank of Mexico is not likely to change its key rate when it announces its policy decision later today.  In remarks today, Governor Stevens of the Reserve Bank of Australia called interest rate settings appropriate and predicted that inflation would not fall much further.

Sweden’s trade surplus of SEK 5.6 billion in October compares unfavorably with a SEK 8.6 billion surplus the month before but favorably with SEK 4.7 billion posted in October 2009.  Exports fell 3.6% on month but rose 14.5% on year. Finnish retail sales volume was 2.4% greater than a year before in October.  Manufacturing wages in Norway were 2.8% greater last calendar quarter.

South Korea’s current account surplus amounted to $5.37 billion last month, a three-month high and up from $3.95 billion in September.  Malaysian consumer prices rose 0.3% in October and by 2.0% from a year earlier.  Taiwan’s index of leading economic indicators slid by 0.4% in both September and October.  Industrial production in Singapore jumped 2.2% on month and 31.0% on year in October.

U.S. markets are open today, but many people will be taking a four-day Thanksgiving holiday.  No U.S. data are scheduled.

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

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