China’s Reserve Requirement Tightened

January 14, 2011

The People’s Bank of China raised reserve requirements.  For big banks, such will become 19% on January 20, up from 18.5%.  There have so far been seven increases of reserve requirements and two interest rate hikes, the last one of those getting announced on December 25.  More tightening lies ahead, as inflation continues to trend higher.  With China, the timing of every move has a political element, and it is no coincidence that today’s announcement comes ahead of President Hu’s visit to the United States next week.

Commodities and commodity-sensitive currencies weakened in the wake of China’s move.

  • Oil and gold fell 1.3% and 1.4% to $90.25 per barrel and $1367.90 per ounce.
  • The U.S. dollar climbed 1.2%, 1.0%, and 0.8% against the Australian, New Zealand and Canadian dollars.

Stocks also fell.  Equities lost 1.7% in India, 1.6% in China and 0.9% in Japan.  In Europe, the British Ftse shows a 0.9% drop so far, and stocks are off 0.3% each in France and Germany.

The dollar has recovered 0.3% against the yen, euro and Swiss franc.  It is unchanged against sterling and 0.1% softer versus the yuan.

Ten-year JGB and German bund yields are unchanged.  The 10-year British gilt firmed a basis point.

Today’s data calendar is very crowded.  Investors await U.S. industrial production, retail sales, business inventories, consumer prices and the early January U. Michigan index of consumer sentiment.  Meanwhile, many figures — mostly price data — were released abroad already.

Japanese December domestic corporate prices rose 0.4% on month and 1.2% on year.  Import prices leaped 2.9% and 4.1% on year.

German December consumer prices increased 1.0%, their biggest monthly rise of 2010, and by 1.7% on year, most since October 2008.

Euro area consumer price inflation in December was confirmed at 2.2%, more than twice the 0.9% increase in the year to December 2009.  Core inflation of 1.1% was only a tenth greater than in the prior 12 months.  Energy rose 11.0% on year after a 1.8% advance in the previous 12 months, and food accelerated to 2.1% from minus 0.2% in the 12 months to December 2009.  Consumer prices increased 0.6% on month in December.

Spanish consumer prices rose 0.6% in December and 3.0% from a year earlier.  Italian consumer prices went up 0.4% on month and 1.9% from December 2009.  Hungarian consumer prices firmed 0.4% on month and 4.6% on year.

The Swiss PPI/import price index rose 0.3% in both monthly and on-year terms last month.  The 2010 average increase was 0.2% after a 3.9% drop in 2009.

British producer output prices increased 0.5% in December and 4.2% from a year earlier with a core 12-month rate of 2.9%.  Producer input prices jumped 3.4% on month and 12.5% on year, exceeding expectations.  The core PPI-I pace was 8.7% on year.

Wholesale prices in India rose 1.3% last month and accelerated to a 12-month increase of 8.4% from 7.5%.

Euroland posted a EUR 1.9 billion seasonally adjusted trade deficit in November after back-to-back surpluses in September and October.  The unadjusted January-November trade surplus was EUR 2.1 billion, down from EUR 18.7 billion a year earlier, with exports advancing 20.0% and imports climbing 21.8%.

Italy’s trade deficit in November of EUR 29.5 billion was 8% greater than the October deficit.  Spain’s index of leading economic indicators fell 1.1% in November on top of a 0.4% drop in October.  Hungarian industrial output increased 4.3% in November and was 15% greater than a year earlier.

China’s index of leading economic indicators rose 0.5% in November after gaining 0.8% in October.

Retail sales in Singapore rose 0.6% in November following a 0.7% increase the month before. Filipino on-year M3 growth slowed to 7.5% in November from 7.7% in October.

Late Thursday came news that the Central Bank of Chile was leaving its monetary policy interest rate steady at 3.25%, pausing after seven consecutive monthly increases.

Besides the abundant slate of U.S. data to be released today, the Fed’s Lacker and Rosengren have scheduled speaking engagements.

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

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