Across-the-Board Softness in the Dollar

January 19, 2011

The dollar fell overnight by 0.5% against the euro, Swiss franc, kiwi, Australian dollar and yen and is 0.2% lower relative to the Canadian dollar and sterling.

The Chinese yuan moved less than 0.1% against the dollar; however, it was fixed by Beijing officials at its strongest value since flexibility was first introduced in July 2005.  Presidents Hu and Obama will hold a joint press conference today.  Several Chinese indicators including 4Q GDP growth get released Thursday.

U.S. technology stocks rallied after Tuesday’s close when Apple and IBM reported strong earnings.  However, stocks in Asia were mixed, and those in Europe are marginally weaker.  While equities gained 2.3% in China, 1.1% in Hong Kong and Taiwan, 1.0% in Thailand, 0.9% in South Korea and 0.7% in Australia, they advanced just 0.4% in Japan and fell by 0.9% in Indonesia and 0.6% in India.  The Dax is flat, while the British Ftse (down 0.3%) and Paris Cac (off 0.1%) are down.

The yield on ten-year JGBs climbed four basis points.  Officials in Japan complained about yen strength again.  Ten-year German bund yields rose one basis point, while the ten-year British gilt yield slid a basis point.  Portugal was able to sell all the 12-month bills it had planned and at a lower average yield than at the previous auction.  A press report suggesting that the German government are now inclined to allow a restructuring Greek debt at reduced interest costs was denied by Berlin officials.

Oil and gold prices firmed 0.5% and 0.3% to $91.87 per barrel and $1372.20 per ounce.

Japan released decent data on service sector activity and condominium sales.  The tertiary index followed gains of 0.8% in the third quarter and 0.3% in October with a 0.6% advance in November, raising the 12-month rate of increase to 2.5%.  Tokyo condo sales in December were 40.8% greater than a year earlier.

The euro area had some disappointing data to report.

  • Construction output fell by 0.9% in November.  A 0.3% uptick in October had been the first increase in four months.  Construction was 6.8% lower than a year earlier in November and 1.3% less in October-November than the 3Q level.
  • The current account deficit widened to a seasonally adjusted EUR 11.2 billion in November from EUR 9.6 billion in October, EUR 6.5 billion in September and EUR 3.7 billion in August.  The last surplus was registered in January 2010.  November’s deficit equaled about 1.4% of GDP, but the deficit over the past twelve reported months was only worth around 0.5% of GDP.

Britain reported labor market statistics.  The December claimant count of unemployment fell 4.1K on top of drops of 3.2K in November and 5.2K in October and was 144K less than in December 2009.  As a percent of the labor force, claimant-basis joblessness has been 4.5% since June.  But on the more representative ILO basis, the unemployment rate averaged 7.9% in the three months to November, up from 7.7% in the three months to August.  Average weekly wage earnings in the three months to November showed on-year growth of 2.1% including bonus pay and 2.3% without such.

Market chatter is speculating on a few of Bank of England rate increases this year, as CPI inflation is seen rising to 4% or more.  ECB officials, in contrast, have backpedaled a bit on Trichet’s hawkish inflation tone last week, suggesting no rate increase is imminent.

The U.K. index of leading economic indicators was unchanged in November, while the coincident index firmed just 0.1% after no change in October.

Australian consumer sentiment dived 5.7% in January, implying that the Queensland flooding is affecting all regions of the country negatively.  Skilled labor vacancies in Australian dropped 4.6% in January, the largest monthly drop in twenty months.

Poland’s central bank raised its key interest rate by 25 basis points to 3.75% in a move many analysts were expecting.  Brazil will indicate its interest rate decision later.

Germany’s Economic Ministry released a semi-annual forecast, predicting growth of 2.3% in 2011, revised from 1.8% in its prior forecast.

South African retail sales were up by a greater-than-expected 7.8% in November compared to a year earlier.  South African consumer prices firmed 0.2% in December and were 3.5% above a year earlier.  Malaysian consumer prices rose 0.4% on month and 2.2% on year in December. 

Iceland’s jobless rate increased a percentage point to 7.4% last quarter.

The Canadian monthly manufacturing sector survey will be released today, but investors are more focused on the Bank of Canada’s quarterly policy report. 

Scheduled U.S. data today include weekly chain store sales, energy inventories and mortgage applications, plus monthly housing starts and building permits.

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

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