A Day of Data and Meetings

December 16, 2010

Ecofin, the group of European finance ministers, are meeting in Brussels to solidify response to euro area debt crisis.  No much new is expected.  Central bank policymakers in India, Switzerland, Turkey and Chile have scheduled announcements.  The Swiss National Bank and Reserve Bank of India left key rates steady at 0.25% and 6.25%.  The RBI took other steps to make market liquidity a little less tight.

The dollar is mixed.  It eased overnight by 0.5% against sterling, 0.3% versus the Australian dollar, 0.2% against the yen and euro, and 0.1% versus the kiwi.  The dollar rose 0.2% relative to the Swiss franc and 0.1% against the Canadian dollar and Chinese yuan.

Stocks fell in the Pacific Rim by 2.4% in Indonesia, 1.2% in the Philippines, 1.3% in Hong Kong, 0.6% in Thailand, 0.5% in China and 0.4% in South Korea.  But Japan’s Nikkei closed unchanged.  In Europe, the Dax is also steady, while the Paris Cac and British Ftse have slid 0.1% and edged up 0.1%.

Ten-year British gilt and Japanese JGB yields rose by three and two basis points.  Spain sold EUR 1.8 billion of 10-year bonds at an average 5.446% and EUR 0.6 billion 15-year debt at 5.953%.  Compared to prior auctions, those rates were some 80 and 140 basis points higher.

Oil and gold prices slipped 0.5% and 0.1% to $88.14 per barrel and $1384.60 per ounce.

Preliminary purchasing manager survey results for the month of December were released for Euroland, Germany, and France.  Such point to fourth-quarter growth of about 1.0% in Germany, twice as much as the likely pace in Euroland.  Growth in 2010 is likely to run at 3.6% in Germany, again twice as fast as Euroland as a whole.  French growth will be a bit softer in the fourth quarter than the third but still reasonably robust.  The rest of the euro is stagnating, however.  Stronger manufacturing did not spread to services.  Job losses are pretty prevalent outside of Germany and France.

  • Germany’s composite PMI increased to a 54-month peak of 59.7 from 59.0 in November and 56.0 in October.  Manufacturing’s reading of 60.9 constituted a five-month high after 58.1 in November and included a sharply higher output component of 62.3 versus 58.7 in November.
  • The French composite PMI was 55.3 in December following scores of 56.4 in November and 54.9 in October.  Services dropped to 54.1, a nine-month low, from 55.0, while manufacturing declined to a two-month low of 56.3.
  • Euroland as a whole had composite, manufacturing, and services readings of 55.0, 56.8, and 53.7.  Manufacturing was better than forecast, but the other two readings fell below expectations for the final month of 2010.

The on-year rise of hourly labor costs in the euro area was halved to 0.8% in 3Q10 from 1.6% in the second quarter and 2.9% in the third quarter of 2009.  Wage growth slowed to 0.7% from 1.5%, while benefits posted a reduced 1.2% gain after 1.9% in 2Q.

Consumer prices in Euroland, according to final figures, firmed 0.1% on month in November and 1.9% on year, same as the on-year pace in October.  Core inflation was unchanged at 1.1%.  In November 2009, total and core on-year inflation stood at 0.5% and 1.0%.  Energy prices climbed 7.9% in the year to November 2010 after dipping by 2.4% in the previous year to November 2009.

British retail sales volume rose 0.3% in November and posted a 1.1% on-year advance.  The nominal value of retail sales increased by 1.0% on month and 3.6% on year.  Britain faces a value added tax next month, which is likely to funnel more retail activity into the fourth quarter of this year.  A quarterly survey of inflation expectations taken by the Bank of England revealed a worrisome half-point acceleration to a 2-year high of 3.9% currently.  This too was probably influenced by the coming tax changes.

Italian consumer prices according to revised figures were unchanged last month and up by 1.7% on year.  The harmonized CPI inflation rate was 1.9%.

Dutch retail sales volume was 3% lower in October than a year earlier.  The Netherlands’ jobless rate averaged 5.2% in the three months to November.  Greek unemployment climbed to 12.4% last quarter from 11.8% in 2Q.  Irish GDP rose 0.5% in 3Q but remained 0.5% below its year-earlier level.  Spanish house prices fell 2.2% last quarter.

Swiss industrial production climbed 1.8% in the third quarter and was 5.8% greater than a year earlier.  Swedish unemployment fell more sharply than expected to 7.1% in November from 7.5% in October.

The Swiss National Bank retained a 0.25% target on the key three-month Libor rate that serves as its target interest rate.  Officials remain concerned about the strength of the Swiss franc, which hit a record high this week against the euro and which is likely to result in softer export and GDP growth next year.  Intervention in the first-half of 2010 proved an unsuccessful tactic to cap the franc’s strength.  The Swiss target rate has been at 0.25% since March 2009 following five reductions totaling 250 basis points between September 2008 and March 2009.

New Zealand’s business purchasing managers index improved to 52.7 in November from 50.0 in October and 49.2 in September.

Projected inflation in Australia slowed to 2.8% this month from 49.2% in November.  Australian imports jumped 8.4% last month following a 3.7% decline in October.

Consumer confidence in Turkey improved to 91.34 last month from 89.02 in October.  Hong Kong unemployment slipped to 4.1% in November from 4.2% in the prior month.

The Reserve Bank of India retained a 6.25% repo rate, a 5.25% reverse repo rate, and a cash reserve requirement of 6% as analysts expected.  But a cut in the statutory liquidity ratio and announced plans to buy some government bonds next month are being done to slightly alleviate tight liquidity conditions.  The primary policy priority continues to be the containment of inflation.  Growth is robust, but inflation is too high, pushed up by fuel and food costs.  Food prices rose 9.5% on year in the week of December 4, up from an 8.7% in the previous week. 

An active U.S. data schedule includes the release of the current account, housing starts, the Philly Fed factory index, and weekly jobless insurance claims.  Canada will be reporting securities transactions with non-residents.  Turkey’s central bank is not expected to change rates, but a Chilean interest rate hike is probable.

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

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