Peripheral Sovereign Debt Concerns Weigh on Euro

December 20, 2010

The euro edged 0.1% lower against the dollar, which otherwise shows losses of 0.5% versus the kiwi, 0.4% against the Swiss franc, 0.3% relative to the Australian dollar, yen and sterling, and 0.2% against the Canadian dollar. ECB President Trichet reiterated the views that EMU member governments must adhere to fiscal discipline but called speculation about defections from the currency union absurd.  There is a report in the FT that ECB officials want Irish banks to improve the quality of collateral for money they borrow.

The yuan has fallen 0.3%, and Chinese stocks are 1.5% weaker.  One Chinese monetary official warned that a rate increase could slow China’s economy excessively.

Elsewhere in the Pacific Rim, equity markets fell 1.6% in Thailand, 0.9% in Japan, 0.8% in New Zealand, 0.6% in Australia, Taiwan and Singapore, 0.4% in Indonesia, and 0.3% in Hong Kong and South Korea.  South Korea defied North Korean saber rattling by conducting live-fire military drill exercises.  European stocks have advanced 0.7% in France, 0.4% in Germany and 0.2% in Great Britain.

Ten-year sovereign debt yields slipped four, three, and one basis points tin Germany, the U.K. and Japan.

Oil and gold prices firmed 0.2% to $88.18 per barrel and $1381.50 per ounce.

Japan’s index of leading economic indicators fell to a nine-month low of 97.7 from 99.1 in September.  The coincident index dropped 1.3 points to a seven-month low.  Convenience store sales in November were 1.1% greater than a year earlier, a substantial improvement over October’s on-year decline.

Euroland recorded a ninth consecutive seasonally adjusted current account deficit.  In size, the EUR 9.8 billion shortfall was similar to September’s EUR 9.7 billion deficit and the largest imbalance so far this year.  The unadjusted current account deficit accrued to EUR 51.7 billion during the twelve months to October compared to a shortfall of EUR 78.8 billion a year earlier.  The “basic balance,” which adds net direct and portfolio net investment flows to the current account, cumulated to a smaller surplus of EUR 9.8 billion over the last reported twelve months from EUR 76.7 billion in the twelve months to October 2009.

German producer prices edged 0.2% higher in November, less than forecast, and were 4.4% greater than a year earlier.  Producer prices had dropped 5.9% between November 2008 and November 2009.  Austrian producer price inflation accelerated to 4.0% in October from 3.3% in September.

Late Friday came word that Colombia’s central bank had retained a 3.0% key interest rate, the eighth such monthly decision in a row.  Hungary’s central bank is holding its last policy meeting of 2010 and will reveal its decision later today.

According to the Conference Board, the French index of leading economic indicators edged up only 0.1% in October, while the index of coincident indicators was unchanged.  These results represent a substantial cool-down from the trend in prior months.

Dutch consumer confidence weakened unexpectedly to minus 14 in December from minus 7 in November.  Danish consumer confidence fell more sharply than forecast, printing at minus 0.7 this month versus +3.6 in November. 

The Confederation of British Industries  expects a slowdown but not renewed recession from the coming fiscal austerity.  It is projecting GDP growth of 0.2% next quarter, followed by 0.4% in 2Q11 and an underlying quarterly rate of 0.5% in the second half of next year.

Taiwanese export orders wee 14.3% greater in November than a year earlier, a stronger gain than analysts anticipated.  Hong Kong GDP in 3Q10 was 6.8% above its year-earlier level.

This will be a holiday-shortened week.  Japan is closed on Thursday, and much of Europe and the Western Hemisphere will not be open on Friday.  The Chicago Fed factory index gets released today, as do a preliminary estimate of consumer sentiment in Euroland, wholesale and retail data in Mexico, and Canadian wholesale turnover figures.  The Bank of Japan began a two-day Policy Board meeting that is not expected to result in new initiatives when officials reveal their decision and publish their monthly economic assessment on Tuesday.

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

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