Dollar Lower But Stocks and Bond Yields Higher after U.S. Tax Cut Extension Deal

December 7, 2010

President Obama announced a tentative deal with Republicans that would extend all Bush era tax cuts for two years and unemployment insurance benefits for 13 months.  Congressional Democrats played little role in these negotiations.

The dollar dropped 0.5% against the Aussie dollar, kiwi and sterling, 0.4% relative to the Canadian dollar, Swiss franc and euro and 0.1% against the yen.  The yuan is unchanged.  Speculation surfaced about another Chinese interest rate hike.  The Reserve Bank of Australia left the Official Cash Rate steady at 4.75%, and the Bank of Canada is meeting but not expected to hike rates (that announcement is due at 14:00 GMT).

Stocks rose by 1.1% in China, 0.8% in Hong Kong and Australia, 0.7% in Indonesia, 0.6% in Thailand, and 0.3% in Singapore but slid 0.3% in Japan and New Zealand and 0.2% in India.  Bigger equity gains have been recorded in Europe of 1.8% in the Paris Cac, 1.1% in the German Dax, and 1.0% in the British Ftse.

Ten-year sovereign bond yields firmed by four basis points in Germany and two basis points in Japan and Britain.

Commodity prices rallied.  Copper climbed 2.8% to a record high.  Oil moved above $90, gaining 0.9% to $90.15 per barrel, a 26-month high.  Gold climbed 0.8% to $1428.00 per troy ounce.

The Reserve Bank of Australia, which had already implemented seven rate hikes since October 2009, did not change the 4.75% benchmark interest rate any further at this month’s policy meeting.  There is no meeting in January.  Aussie dollar strength was cited as a marginal disinflationary factor.

WikiLeaks founcer Assange was apprehended by British police in connection with alleged rape charges in Sweden.

German industrial orders rose 1.6% in October, reversing less than half of September’s 4.0% drop and leaving the level unchanged from the 3Q average.  Orders advanced 18.1% on year.  A 3.9% increase in domestic capital goods orders paced the revival which nonetheless fell a shade below market expectations.  Export orders increased 0.8% after dropping 6.3% in the previous month, and they were 1.4% below their third-quarter average level.

British industrial production unexpectedly slid 0.2% in October, cutting their on-year increase to 3.3% from 3.8% in September.  A big drop in mining and quarrying offset a 0.6% on-month advance in manufacturing.  Factory output was 5.8% greater than a year earlier.

Icelandic real GDP rose 1.2% last quarter after a 3.1% drop in 2Q.  GDP was just 1.6% lower than a year earlier.  Iceland has bounced back nicely from its debt crisis, helped by the ability to complement fiscal and monetary restraint with sharp currency depreciation, an option not open to the peripheral members of EMU with troubled sovereign debt markets of their own.

Swiss unemployment edged up to 3.6% last month from 3.5% in October.

It’s been a big day for national releases of industrial production figures.  In addition to those already mentioned, Norwegian industrial production rose 8.6% in October but was 2.4% lower than a year earlier.  Danish industrial output fell 4.8% in October, while orders increased 3.0%. Hungarian industrial production declined 1.0% in October but remained up on year by a significant 8.3%. Czech industrial output slid 0.3% in October, cutting the 12-month rate of rise to 6.9% from 12.4%.  Czech retail sales (up 0.3% on month and 1.0% on year in October) and trade surplus for that month (CZK 15.3 billion) were also announced.

Japan’s index of leading economic indicators fell to 97.2 in October from 98.6 in September and 99.5 in August.  The diffusion leading index, which can range from 0 to 100) was 20.0, down from 36.4 in September and 45.5 in August.  The index of coincident indicators also lost ground, falling to 100.7 from 102.1 in September and 103.3 in August.

Filipino consumer price inflation rose to 3.0% last month from 2.8% in October.  Core inflation was 3.5% in the latest month. 

Scheduled U.S. data today include the IBD/TIPP optimism index, consumer credit, and weekly chain store sales.

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

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