Confusion of More Divergent Economic Statistics

January 6, 2011

The dollar is generally firm, supported by yesterday’s ADP employment report, higher market interest rates, European economic divergence, and lingering euro area peripheral debt concerns.  The dollar advanced 0.4% against the euro overnight and is also up 0.3% against the Swiss franc and 0.2% versus sterling and the Australian dollar.  The dollar jumped 0.6% against the yuan, reversing yesterday’s decline.  The dollar slid 0.2% against the kiwi, yen, and Canadian dollar.

Stocks advanced 1.4% in Japan, 1.5% in Pakistan, and 0.8% in Singapore.  In European trading thus far, equities have firmed 1.0% in Germany, 0.8% in France and 0.6% in Britain.

Ten-year sovereign debt yields increased six, two and one basis points in Japan, Britain, and Germany.  The Greek prime minister has recommended a common regional fiscal authority in Euroland.  Spanish sources confirm China will invest EUR 6 billion in Spanish debt.  Peripheral bond spreads remain excessive.

Oil prices slid 0.5% to $89.87 per barrel.  Lead story in Wednesday’s FT covered a warning from the International Energy Agency that “high oil prices [could] threaten to derail the fragile economic recovery among developed nations this year.”  Gold prices are unchanged at $1374.00 per troy ounce.

Another very disappointing retail sales report was released by the euro area.  Retail sales volume in the bloc fell 0.8% in November, defying an expected 0.2% increase.  The 12-month rate of rise slowed to 0.1% from 1.2% in the year to October and 1.7% in September.  Sales in October-November were 0.4% less than the 3Q average level.

On the other hand, Euroland’s largest economy, Germany, saw industrial orders leap 5.2% in November and by 20.7% from a year earlier.  Orders in October-November combined exceeded the 3Q level by 2.6% and 5.6% among domestic capital goods, which are an indicator of future business investment.  Foreign capital goods shot up 13.5% in November, attesting to Germany’s strong competitive position.

Economic sentiment indices from the euro area also provided a pleasant surprise.  Overall sentiment improved to 106.2 in December from 105.1 in November, 103.8 in October, 98.9 last June and a cyclical low of 70.6 in March 2009.  Industrial confidence rose 3.3 points to 4.0 in the latest month.  Retail confidence swung to plus 4.6 from minus 1.5, while construction remained weak at minus 26.2 amid frigid weather.  Service sector confidence slipped to 9.8 after rising in November to 10.3 from 8.1 in October and 3.9 last June.  Consumer confidence weakened to a three-month low of minus 11.0 from minus 9.4 in November.  A separate business climate index continued to improve, climbing to 1.31 from 0.91 in November, 0.40 last June and a cyclical low of minus 3.72 in March 2009.

Australian construction approvals dived 4.2% in November, but a big drop had been anticipated.  Approvals were 9.9% lower than a year earlier.  The Australian service-sector purchasing managers index recorded a sub-50 value for the second month in a row and seventh time in the last eight months.  The reading was 46.4 after 46.2 in November.  Heavy flooding in Northeast Australia has dampened expectations that the Reserve Bank will tighten credit policy again soon.  Its cash rate of 4.75% has already been lifted seven times from 3.0% prior to October 2009.

Japan’s composite purchasing managers index ended 2010 on an improving note, rising to 49.4 from 48.7 in November and 47.2 in October.  The services PMI inched above the 50 breakeven line to 50.2 from 49.5 in November and a long-term average of 44.5.  Input price pressures were their highest since October 2008.

Hong Kong composite PMI rose to 55.0 in December from 53.5 in November, and input prices had their highest reading ever.

The biggest negative shocker of the day came from Britain’s services purchasing managers index.  The mere whiff of approaching fiscal austerity caused such to fall to 49.7 from 53.0 in November and 54.3 last June.  It was the first sub-50 reading since April 2009.  Collectively, all the British PMIs suggest that GDP growth slowed to around 0.4% last quarter from 0.7% (not annualized) in 3Q and 1.1% in 2Q.

Italy is celebrating Epiphany Day.

The Czech trade surplus narrowed to CZK 11.84 billion in November from CZK 14.54 billion in October.  Exports exceeded year-earlier levels by 21%.

Swiss consumer prices were flat in December and 0.5% greater than a year earlier.  Inflation averaged 0.7% last year after negative 0.5% in 2009 and is likely to remain ultra-low for a couple of more years.

Dutch consumer prices dipped 0.2% in December but accelerated in on-year terms to a rate of 1.9%.  Such averaged 1.3% in 2010.

Danish unemployment of 4.2% in November was unchanged from October and a shade less than forecast.  Ireland had a 13.4% jobless rate in December.

Indian wholesale prices for primary goods were 20.2% greater than a year earlier in the latest week’s report, thanks to food (especially onions) that accelerated to 18.3% from 14.4% in the week to December 18.  The IMF is urging the Reserve Bank of India to step up its monetary tightening.

Retail sales in Romania slipped 1.3% in November on top of a 4.9% drop in October.  They were 7.6% weaker than a year earlier.

Investors eagerly await U.S. weekly jobless claims, which finally fell below the 400K threshold in the previous weekly report.  Canadian housing starts and its IVEY-PMI index will be released today.  Peru’s central bank has a scheduled interest rate policy announcement and is expected to retain a 3% key rate.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.

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