Bond Yields Rocket Upward

December 8, 2010

Ten-year sovereign debt yields advanced overnight by a further 7,6, and 4 basis points in Japan, Britain and Germany.  10-year Treasuries are signaled up 5 bps.  Since Bernanke mentioned the likelihood of QE2 in late August, yields have advanced 79 bps in Germany, 63 bps in Britain, 57 bps in the United States and 24 bps in Japan, proving that there’s no such thing as a free lunch.

A former Japanese Finance Minister, Sakakibara, drew comparisons between the present U.S. circumstances and Japan in the early 1990s.  Investors believe that the Obama’s fiscal deal with Republicans will mean less Fed stimulus than assumed before.

Chinese stocks fell 0.9% overnight as speculation continued that the central bank there will raise interest rates next Saturday.  A report surfaced that Chinese data may be reported on the weekend rather than Monday, December 13.  Equities fell also by 1.5% in Thailand, 1.4% in Hong Kong, 1.2% in India, 0.6% in Australia, and 0.4% in South Korea.  But some Asian markets closed with a gain, such as Japan (0.9%) and Indonesia (+1.3%).  In Europe, the Ftse is up 1.0%, but the German Dax lost 0.3%.

The dollar is mostly higher, with advances of 1.0% against the kiwi, 0.6% against the yen, 0.3% relative to the euro and yuan, 0.2% against the Australian dollar, and 0.1% versus the Swiss franc.  The greenback lost 0.2% against the Canadian dollar and 0.1% versus sterling.

Oil and gold prices dropped 0.4% and 0.7% to $86.30 per barrel and $1398.60 per ounce.

Several Japanese indicators were released:

  • Core domestic machinery orders fell 1.4% in October following a 10.3% plunge in September, and such were 5.5% less than the 3Q average level.  Foreign machinery orders, however, leaped 16.0% and were 51.5% greater than a year earlier.
  • The economy watchers index, a gauge of retail activity, improved 3.4 points to 43.6 in November, best since August but under 50.0 nonetheless where such has been since March of 2007.
  • The October current account surplus of JPY 1436 billion was smaller than forecast and below September’s JPY 1960 billion surplus.  The seasonally adjusted current account surplus narrowed 12% between September and October to JPY 1463 billion.  The merchandise trade surplus of JPY 913 billion was similar to September’s JPY 927 billion and the surplus of JPY 937 billion a year earlier.  On-year export growth has slowed to 8.8%.  Japan recorded a Basic Surplus (current account plus long-term capital movements) of JPY 4337 billion versus a deficit of JPY 1966 billion in September and a surplus in October 2009 of JPY 5821 billion. 
  • Money growth slowed in November to 2.6% on year for M2 from 2.8%, 2.0% from 2.1% in the case of M3, 2.8% from 2.9% in M1 and 0.3% from 0.4% for broad liquidity.  The on-year drop in bank lending remained at 2.0%.  In defense of QE2, Bernanke has repeatedly noted that U.S. money and credit growth remain weak, which is what has happened in Japan for the past 20 years in spite of low interest rates and quantitative easing there.
  • Bankruptcies in November were 6.3% smaller than a year earlier and associated with a 60.6% decline in liabilities.

Australian owner-occupied housing loans increased 1.9% on year in October, the biggest gain since May.  Business lending in Australia was 1.1% higher.

Real manufacturing sales in New Zealand fell 1.4% last quarter, their third quarterly decline in a row.

South Korean on-year M2 growth slowed to 7.6% in October from 8.1% the month before.  Filipino M3 slowed to 7.3% from 10.5% in September.

Iceland’s central bank implemented a further 100-basis point decline in its seven-day benchmark interest rate to 4.5%.

Germany posted a reduced EUR 11.7 billion current account surplus in October versus EUR 14.5 billion in September and EUR 9.7 billion in October 2009.  The year-to-date current account surplus widened 14.5% to EUR 97.9 billion.  The seasonally adjusted merchandise trade surplus of EUR 14.2 billion was EUR 1.2 billion smaller than September’s surplus as exports posted a surprising 1.1% drop.  That was the third decline in four months.  The level of exports in October was accordingly only 0.8% greater than in June.

German industrial production rebounded three times faster than forecast in October, rising 2.9% after a 1.0% decline in September.  Output in October was 11.7% greater than a year earlier and 2.7% higher than the 3Q average level.  Factory output increased 3.2% in the latest month.  Germany had 4.7% more bankruptcies in the first nine months of 2010 than a year earlier because of a 9.5% jump in household bankruptcies.  Business insolvencies slid 0.9%.

Britain’s industrial trends index, which is calculated monthly by the Confederation of British Industries, improved much more sharply in December to minus 3% from minus 15% in November than analysts were anticipating.  It was the best reading since mid-2008.

France’s business sentiment index, the one reported by the central bank, improved to 107 in November from an upwardly revised 104 in October and a reading of 102 in September.  The Bank of France accordingly revised upward its projected fourth-quarter GDP growth rate to 0.6% not annualized.  France reported a smaller trade deficit of EUR 3.4 billion in October versus EUR 4.4 billion the month before.  French public finance figures showed on-year increases of 16.9% in expenditures and 20.1% in revenues in October.

Czech joblessness edged up a tenth in November to 8.6%.  That country’s current account deficit last quarter totaled CZK 77.6 billion after CZK 32.2 billion in 2Q10.  Romanian industrial output was 4.8% greater in January-October than a year before.  Turkish industrial production posted the same 12.8% on-year increase in October as in September.  Greek consumer prices firmed 0.2% last month, reducing the 12-month rate of increase to 4.9% from 5.2%.

Retail sales in South Africa increased 0.7% on month and 6.1% on year in October, less than expected.

Brazilian consumer price inflation rose to 5.6% in November from 5.2% in October.  The Bank of Brazil will release an interest rate policy statement later today.

U.S. mortgage applications fell 0.3% last week.  Canadian housing starts will be released later today.

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

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