ECB Supporting Portuguese Bonds Ahead of Auction

January 12, 2011

Equities advanced 2.9% in Indonesia, 1.8% in India, 1.5% in Hong Kong and 0.6% in China and Thailand overnight.  Japan’s Nikkei improved 0.3%, and the Paris Cac and German Dax have so far climbed 1.4% and 1.3%.  The British Ftse is 0.3% higher.  ECB buying of peripheral debt and verbal support from China and Japan have alleviated some anxiety about Euroland’s peripherals in this week of heavy borrowing by Euroland’s troubled members.

The euro briefly climbed as high as $1.3047 but has fallen back below $1.3000 to show no net overnight change.  The dollar is also flat against the yen but 0.2% softer against the Canadian dollar, Swiss franc and Chinese yuan.  The dollar dipped 0.1% against the Australian dollar but rose 0.1% against sterling.  Its sharpest move has been a 0.5% gain relative to the New Zealand dollar.

Ten-year German bund and British gilt yields are six basis points each, while their JGB counterpart eased two basis points.

Oil and gold edged 0.1% lower to $90.99 per barrel and $1382.80 per troy ounce.

The Bank of Thailand raised its key interest rate by 25 basis points for the fourth time in five meetings.  The move was expected by analysts and brings the rate level to 2.25% compared to a cyclical low of 1.25%.

Japan released a number of indicators:

  • The current account surplus of JPY 926 billion in November was smaller than forecast and 15.7% lower than a year earlier.  Merchandise exports rose just 9.3% on year versus a 15.7% advance in imports.  Seasonally adjusted exports slid 0.8% on month and were unchanged from September’s level.  The seasonally adjusted trade surplus was JPY 397 billion, down from JPY 641 billion in October and JPY 702 billion in September.  Exports in December 1-20 were 9.6% higher than a year earlier, but imports rose by 12.6%.
  • Japan’s “basic balance,” which combines the current account and long-term capital movements, showed a surplus of JPY 1.633 trillion in November, down sharply from JPY 4.447 trillion the month before.
  • Stock and bond transactions in December generated a net outflow of JPY 416 billion.
  • The economy watchers index, a barometer of retail activity, picked up to 45.1 in December from 43.1 in November but remained below 50 for a 45th consecutive time.  Such had been as weak as 38.8 in January 2010.
  • On-year M2 money growth slowed to 2.3% in December from 2.6% in November and to 2.6% in 4Q10 from 2.8% in 3Q and 3.0% in 2Q.  M3 was 1.8% higher last month than a year earlier, but broad liquidity showed a measly 0.1% on-year uptick.
  • Bank loans posted on-year declines of 2.0% last quarter after drops of 1.8% in 3Q and 1.9% in 2Q.

Industrial production in the euro area jumped 1.2% in November on top of a 0.7% increase in October and was 1.3% greater in October-November than in 3Q.  November’s increase was paced by gains of 1.6% in intermediate goods, 1.5% in energy and 1.4% in capital goods, and the overall 1.2% rise was more than twice as much as forecast.  Output was 7.4% greater than a year earlier, but that robust advance masks discrepancies ranging from 14.2% in Ireland and 11.4% in Germany to a drop of 8.0% in Greece.

Italian industrial output increased 1.1% in November and showed a 12-month gain of 4.2%, up from 2.9% in October.

German real GDP data for full-2010 was reported.  This is a preliminary number.  Fourth-quarter data are not due for another five weeks.  Anyway, GDP increased 3.6% last year (3.5% adjusted for different number of working days) following a drop of 4.7% in 2009.  The result was more or less in line with expectations.  Growth was promoted by net exports but not the foreign sector alone.  Net exports enhanced GDP by 1.9 percentage points while domestic demand added 2.6 percentage points of growth.  The budget deficit equaled 3.5%  of GDP last year, similar to the 3.6% ratio in 2009.

Britain’s goods and services trade deficit widened to GBP 4.123 billion in November from GBP 4.038 billion in October and GBP 3.68 billion per month during the first nine months of 2010.  The merchandise trade deficit of GBP 8.736 billion was about 4% greater than forecast and up from GBP 8.59 billion in October.  According to the British Retail Consortium, shop prices were 2.1% higher in December than a year earlier.

France’s current account recorded a EUR 4.2 billion deficit in November after a shortfall of EUR 2.8 billion in October.  Like Germany, the Netherlands runs external surpluses routinely and posted a EUR 4.27 billion trade surplus in November, 36% bigger than in October.  The wide disparity between surplus and deficit economies in Euroland reflects vast imbalances in competitiveness and is central to the tensions that will continue to strain the currency union.  But today, those tensions have lessened due to substantial ECB support for peripheral bonds, especially Portugal’s.

The French budget gap in the first eleven months of 2010 reached EUR 140.7 billion, 0.5% less than a year earlier.  There was a EUR 7.6 billion gap in November.  Belgium’s fiscal deficit equaled 4.6% of GDP in 2010.  The government is targeting 2.0% GDP growth for 2011.

Mortgage loans in Australia rose 2.5% in December, their fifth straight advance.  Analysts were expecting a decline.

Indian industrial production only increased 2.7% between November 2009 and November 2010.  That gain was only about a third as much as forecast and down from on-year growth of 11.3% in October.

Greek import price inflation accelerated to 4.6% in November from 4.0% in October.  Portuguese CPI inflation picked up to 2.5% in December from 2.3% in November. Romanian CPI inflation reached 8.0% in December after 7.7% the month before.  Romanian industrial output rose 1.6% in November and was 3.9% higher than a year earlier. 

South African business sentiment improved to 87.6 in December from 87.0 in November.

Scheduled U.S. releases today cover import prices, the federal budget, and the Fed’s Beige Book.  Fisher of the Fed will be speaking.  Canada releases new home prices.  Tomorrow features the first Bank of England and ECB policy announcements of 2011.  A huge snowstorm hit the U.S. overnight, with up to two feet of accumulation expected in Connecticut.

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

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