Dollar Down Ahead of FOMC Statement

December 14, 2010

The dollar overnight lost 0.8% against the Swiss franc, 0.7% versus the Australian dollar, 0.6% against the yen and euro, 0.3% relative to the Canadian and New Zealand dollars and 0.1% vis-a-vis the yuan and sterling.

The last scheduled statement of 2010 from the Federal Open Market Committee will be released around 19:15 GMT today.  Several key U.S. indicators also arrive today: weekly chain store sales, monthly retail sales, the NIFB index, producer prices, and business inventories.  President Obama’s special advisor on Afghanistan and Pakistan, Richard Holbrooke, has died.  Momentum for passage and the signing of the tax cut bill continues to build in the wake of the senate’s solid vote of support.

Stocks in the Pacific Rim rose 0.8% in the Philippines, 0.7% in Pakistan, 0.6% in India and South Korea, 0.5% in Hong Kong, 0.4% in Thailand, 0.3% in China, and 0.2% in Australia.  The Paris Cac and British Ftse are unchanged and the German Dax has so far edged 0.1% lower.

Ten-year sovereign debt yields eased two basis points in Germany, firmed a basis point in Great Britain, and are unchanged in Japan.

Oil and gold prices firmed 0.3% and 0.6% to $88.88 per barrel and $1406.30 per troy ounce.

Japanese industrial production in October was revised to a month-on-month decline of 2.0% from minus 1.8% reported two weeks ago.  In another worrisome sign, the inventory ratio was revised to a jump of 8.4% from +7.6%.  Capacity use fell 2.3% on month, while capacity firmed 0.4%.  Industrial output in October was up 4.3% on year but 3.3% below the 3Q average level.  After a strong 4.5% annualized advance in the third quarter, real GDP is likely to post a decline in the final quarter of 2010.

Euroland industrial production went up 0.7% in October, only half as much as forecast despite a 3.0% leap in German industrial output that month.  The common currency area’s industrial production was 6.9% greater than in October 2009 and 0.5% higher than the 3Q average level.  On-month output declines were registered in October of 4.8% in Ireland, 2.4% in Portugal, 0.6% in France and 0.1% in Italy, and production eked out a mere 0.1% uptick in Spain.

Germany’s ZEW Institute released its latest measures of investor sentiment for the whole euro area and Germany.

  • Euroland:  The expectations component unexpectedly improved to 15.5 in December from 13.8 in November and 1.8 in October.  But current conditions deteriorated to a reading of minus 4.6 from minus 1.0 in November and minus 1.1 in October.
  • Germany:  The expectations index of 4.3 was higher than November’s 1.8 and a reading of minus 7.2 in October.

British consumer prices climbed more sharply than forecast in November, advancing 0.4% on month and 3.3% on year.  Core CPI inflation held steady, however, at 2.7%.  Retail price inflation and the RPIX gauge (which excludes mortgage interest payments) each accelerated slightly to 4.7%. 

French consumer prices firmed 0.1% last month, and the 12-month rate of increase stayed at 1.6% as expected.  Core CPI was just 0.7%.

Two housing market indications were released in Britain.  The Royal Institute of Chartered Surveyors house price balance improved unexpectedly to minus 44% from minus 49% in October.  The Department of Communities and Local Government measure dipped 0.1% on month in October and recorded a smaller 5.5% on-year increase after 12-month gains of 6.1% in September, 8.3% in August and 11.0% in May.

Italian Prime Minister Berlusconi survived a no confidence vote in the senate, but similar vote in the Assembly later today is seen as a much closer call.  Elections are likely if he loses the vote.  Italian labor costs rose 0.5% in the third quarter and by 3.1% on year.

ECB President Trichet is urging regional governments to raise their EUR 440 billion bailout fund for members with troubled sovereign debt situations.  Portugal has requested and apparently received positive feedback for financial assistance from China.

New Zealand reported an unexpectedly disappointing 2.5% monthly slump in October retail sales, cutting the 12-month rate of increase to 1.5%, a third of September’s outcome.

Showing the effect of tighter monetary policy, Australian dwelling starts fell by 13.2% in 3Q but were up 12.4% on year.  Private housing starts dropped 4.3% in the latest quarter.

South African consumer prices rose 0.2% last month and by 3.6% from November 2009.

Spain’s indices of leading and coincident indicators each fell in October, dropping by 0.4% and 0.2%.  In September, the measures had fallen by 0.1% and 0.4%.

The Dutch trade surplus in October of EUR 3.5 billion was 25% narrower than the September surplus. 

As expected, wholesale price inflation in India eased to 7.5% in November from 8.6% in October.

Brazilian retail sales advanced 0.4% on month and 10.7% on year in October.  Portuguese consumer prices firmed 0.2% on month and 2.3% on year in November.

Canada also reports several indicators today including the index of leading economic indicators, labor productivity, and motor vehicle sales.  The Bank of Japan’s quarterly business survey, also know as the Tankan, will be released Wednesday morning in Japan.

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

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