German IFO Survey Lifts Euro

January 21, 2011

The euro advanced as high as $1.3569 overnight, its strongest value since November 23, and shows a net gain of 0.4% against the dollar.  The U.S. currency is also down 0.4% against the Swiss franc, 0.2% versus the yen and 0.1% against the Canadian dollar.  The greenback shows no change relative to the yuan, Aussie dollar or sterling and has climbed 0.4% against the kiwi.

Stocks fell in Asia (except in China) but are trading higher in Europe.  Equities declined 2.2% in Indonesia, 1.7% in South Korea, 1.6% in Japan, 1.5% in Thailand, 1.2% in Malaysia, 0.7% in Singapore, 0.6% in Australia and 0.5% in Hong Kong.  Stocks rose 1.3% in China, 1.2% so far in Paris, 0.7% in London and 0.6% in Frankfurt.

After yesterday’s big slump, gold eased another 0.2% to $1343.40 per ounce.  Oil firmed 0.6% to $90.12, having dipped below $90 on Thursday.

Ten-year yields on JGBs and German bunds each firmed one basis points, while British gilts remained steady.

Waiting for a predicted German economic slowdown has been like waiting for Godot.  The IFO German business climate index printed at 110.3 in January, up 0.5 points.  No change was forecast.  The improvement occurred in the expectations component, an advance to 107.8 from 106.8 in December, 106.4 in November, and 91.4 a year earlier.  The component for current conditions had a reading of 112.8 compared to 106.9 last July and 91.4 in January 2010.  By industrial sector, the improvement this month was most pronounced in construction and manufacturing.  Wholesaling and retail settled back following sizable gains in December.

The government’s assessment of the Japanese economy in January improved for the first time in seven months, observing “some movements toward a pickup.”  The prior assessment had merely called attention to a recent apparent “pause” in activity.  The noted improvement has been seen in industrial production.

Japan’s all-industry index nonetheless slipped 0.1% in November, its fourth monthly drop in a row, and was just 2.4% higher than a year earlier.  In the latest month, drops of 3.1% in construction and 0.5% in government spending outweighed increases of 1.0% in industrial output and 0.6% in service-sector activity.  The all-industry index in October-November was 1.0% lower than the third-quarter average level.

British retail sales were disappointing in December, falling 0.6% in value terms and 0.8% on a volume basis.  The volume of sales rose just 0.2% last calendar quarter and 0.4% from a year earlier.  Britain has a bad combination of large external and budget deficits, elevated inflation, weaker-than-hoped exports, and vulnerable domestic demand as massive fiscal restraint is applied.  All things considered, the pound has resiliently remained near $1.6000.

Australian export prices slumped 8.1% in the fourth quarter, while import prices dropped back 3.8%.  Compared to 4Q09, however, exports prices soared 19.4% as import prices slid 1.0%.

New Zealand had two pieces of encouraging news.  Retail sales bounced back 1.5% in November from a 2.4% drop in October.  The rise exceeded expectations and left sales 2.5% above a year earlier.  New Zealand’s business purchasing managers index remained above 50, in fact rising to 53.1 in December from 52.7 in November.

The French government’s measure of business sentiment jumped six points in January to a 34-month high of 108.  Businessmen became more optimistic about their own circumstances while showing unchanged views about national French prospects.  The French index of leading economic indicators dipped 0.3% in November, whereas the coincident index that month climbed 0.3%.

Italian trade with non-EU countries generated a EUR 20.2 billion deficit last year, 6.5 times wider than in 2009.  As in other peripherals, Italian competitiveness has slipped.  Dutch consumers spent 2.6% more in November than a year earlier. 

Portuguese producer prices advanced 0.6% on month and 4.9% on year in December.  At the same time, Icelandic wages increased 0.2% on month and 4.5% on year, and Swiss on-year M3 money growth accelerated to 6.6% from 6.4% in November.  Euroland’s third-quarter current account deficit in the third quarter of 2010 was revised to EUR 8.3 billion or 0.4% of GDP.  That was down from 0.9% of GDP in 2Q10 and 1.0% in the first quarter of last year.

There are no U.S. statistical releases today.  Canada will be reporting retail sales, and the Bank of Mexico will announce its latest interest rate decision.   It’s snowing again in the U.S. northeast.

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

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