China Help for European Debt Crisis?

December 22, 2010

The dollar has lost 0.7% against the Swiss franc, 0.4% relative to the Canadian dollar, 0.3% against the euro and yen, 0.2% versus the Australian and New Zealand dollars and 0.1% against the yuan.  The greenback is up 0.1% against sterling.

The dollar poked above 1.3100 per euro on indications that China may buy some Portuguese sovereign debt.

Oil advanced 0.6% and is above $90 at $90.32 per barrel. Gold prices firmed 0.1% to $1390.20 per troy ounce.

Ten-year sovereign debt yields dipped three basis points in Japan and two bps each in Britain and Germany.  A similar trend is indicated by Treasury futures.

British 3Q GDP growth was revised down a tenth to 0.7% (2.9% annualized from 2Q) and an on-year advance of 2.7%.  Growth was led by a 3.4% increase in investment.  Personal consumption and government spending were weaker than in 2Q with a 0.3% rise and a 0.4% drop, respectively.  Net exports exerted a 0.1 percentage point drag on GDP growth, and the growth of both exports and imports slowed to 1.5% and 1.7%.  The GDP deflator was 2.4% higher than in 3Q09.

The British current account deficit widened 83% to GBP 9.568 billion between 2Q and 3Q and to 2.6% of GDP from 1.4% of GDP in 2Q, 1.7% of GDP in 2009, and 1.6% in 2008.

Minutes from the Bank of England’s December 8-9 policy meeting revealed the same two 8-1 votes as in October and November for a) leaving the Bank Rate at 0.50% with Andrew Sentance preferring a 25-basis point hike to 0.75% and b) leaving the asset purchase program limit at GBP 200 billion with Adam Posen wanting to raise such to GBP 250 billion.  However — and this is important — the direction of short-term inflation risk was changed to biased upward from roughly balanced.  So the majority’s predisposition is shifting slowly toward a more hawkish stance.

German import prices jumped 1.2% in November, lifting the 12-month rate of increase to 10.0% from 9.2% in the year to October.  Import price inflation excluding oil reached 8.5%, up from 7.7% in October and 6.8% in June.  German export prices increased 0.3% in November and by 4.5% from a year earlier.

Italian retail sales advanced 0.3% on month and by 0.6% on year in October.  Consumer confidence had a higher-than-expected 109.1 reading in November after 108.5 in October.  Also in November, hourly wage earnings rose 0.2% on month and by a slightly steeper 1.7% on year after 1.5% in October.

Japan’s customs clearance merchandise trade surplus of JPY 163 billion in November was 55.4% smaller than a year earlier.  On-year import growth of 14.1% outstripped export growth of 9.1%.  These relative speeds were mirrored in the volume figures where exports went up 9.2% and imports climbed 15.4%.  Six months earlier, nominal exports had shown an on-year rise of 31.9% compared to a 22.3% increase in imports.

Because of reinsurance claims connected to earthquake damage, New Zealand posted its first current account surplus in a year, NZD 35 million.  The underlying trend of the current account was adverse, however, and is running around 4-5% of GDP.

Malaysian consumer prices firmed 0.3% on month and 2.0% on year last month, matching October’s results.  Taiwan posted a 4.8% jobless rate last month.

Danish real GDP growth was revised upward to 1.0% on quarter and by 3.3% on year in 3Q, up from a 2.8% advance between 2Q09 and 2Q10.

Swedish producer prices increased 0.8% last month, reversing October’s 0.7% drop, and posted a 2.2% on-year advance.  Icelandic consumer prices climbed 0.3% in December and by 2.5% from a year earlier.  Ireland’s trade surplus widened 7.5% on month in October.  Norwegian unemployment of 3.6% in September-November was a tenth percentage point higher than expected.

The Czech central bank left its key policy rate unchanged at 0.75% as expected.  Poland’s central bank is expected to announce an unchanged 3.5% rate later today.  Hungarian retail sales fell by 0.7% both on month and on year in October.

South Africa’s index of leading economic indicators slid to a reading of 129.8 in October from 130.6 in September. Brazilian consumer confidence softened to 122.5 this month from 125.4 in November.

Investors await the final revision of U.S. GDP in 3Q, as well as monthly existing home sales and the FHFA home price index.  Many markets will be closed or shutting early tomorrow for the extended Christmas holiday.

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

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