No Rate Hike in China

December 13, 2010

The People’s Bank of China failed to complement the recent increase of reserve requirements with an increase in central bank interest rates.  The move in reserve requirements, it is now clear, was intended as a substitute tightening move and one that would put less upward pressure on the yuan, which fell back 0.2% against the dollar below Friday’s level.  Released Chinese data on Saturday showed more growth and inflation than forecast.

This will be a quiet Monday from a data release standpoint. 

The dollar is mixed, with advances of 0.5% against sterling and 0.2% against the yuan and yen but declines of 0.3% relative to the kiwi, 0.2% versus the Canadian and Australian dollars, and 0.1% against the euro.  The Swissy is unchanged against the dollar.

Ten-year sovereign bound yields climbed six basis points in Japan and a single basis point in Britain and Germany.  U.S. Treasury yields are indicated higher.

Chinese equities rebounded 3.1% in relief at the lack of an interest rate hike there.  Stocks also closed up 0.9% in India, 0.8% in Japan, 0.7% in Hong Kong, 0.6% in New Zealand, and 0.5% in South Korea, but equities fell 1.5% in Indonesia, 0.5% in the Philippines, and 0.2% in Thailand.  In Europe, the Paris Cac and British Ftse are trading 0.7% higher, and the German Dax is up 0.3% so far.

Oil and gold prices increased by 1.2% and 0.4% to $88.85 per barrel and $1390.90 per ounce.

China’s remaining monthly data releases showed

  • An acceleration of CPI inflation to a 28-month high of 5.1% in November from 4.4% in October and 3.6% in September.  The 1.1% monthly consumer price rise surpassed expectations.  Food costs jumped 11.7% over the last 12 months, while non-food inflation was at 1.9%.
  • Producer prices increased 6.1% in the year to November after 12-month advances of 5.0% in October and 4.3% in September.  Like the CPI, PPI inflation exceeded what analysts were anticipating.
  • Industrial production rose 13.3% in the year to November, same as the 12-month rise in September but up from 13.1% in the year to October.  Analysts had forecast a 13.0% increase.
  • Retail sales matched expectations, rising 18.7% on year versus 18.6% in the year to October.
  • Fixed asset investment in January-November was 24.9% greater than a year earlier, implying an underlying pick-up from a 24.4% increase booked in the first ten months of this year.

President Obama’s key advisor on Afghanistan and Pakistan, Richard Holbrooke, remains in critical condition after a burst aorta.  The U.S. senate may vote today on the tax cut/jobless insurance claims extension bill.

Britain’s Rightmove house price index slumped 3.0% on month in December, trimming the on-year increase to just 0.4% from 1.3% in the year to November.  U.K. producer input prices advanced 0.9% in November and posted a higher 9.0% 12-month rate of increase after 8.2% in October.  Core PPI-I accelerated to 7.0% from 5.9%.  The Bank of England’s Quarterly Bulletin blamed low bank lending primarily on tight credit supply, not weak demand.

Switzerland’s PPI/import price index slid 0.2% on month in November, cutting its 12-month increase to 0.1% from 0.3%.  This was even lower than assumed.

Hong Kong producer price inflation rose to 6.5% on year last quarter from 6.0% in 2Q10.  The former British colony’s industrial production was 5.4% greater in the third quarter than a year earlier, which represents more than a doubling of the 2.2% on-year pace in 2Q.

The French current account deficit narrowed to EUR 2.5 billion in October from EUR 4.4 billion in September.  Turkey’s current account deficit narrowed 8.0% to $3.67 billion in October compared to the previous month.  Home sales in Spain were 17.7% lower than a year earlier in October.  Swedish unemployment slid more than expected to 4.3% in November from 4.5% in October.  Greek import price inflation slowed to 4.0% in October from 4.9% in September but still exceeded the 0.9% increased in the year to October 2009.

The OECD published its survey of the euro area economy, projecting growth of 1.5-2% in 2010-11 and urging the ECB to tighten at any sign of returning price pressure.

New Zealand food prices dipped 0.6% last month but were 4.8% greater than in November 2009.  Reserve Bank of Australia Governor Glenn Stevens called mortgage rate levels “appropriate.”

Canada releases quarterly capacity utilization.  Ordonez of the ECB and German Finance Minister Schaeble will speak publicly today.  Mexico reports industrial production.  There are no U.S. data releases scheduled.

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

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