S&P Downgrades Japanese Debt, Sending Yen Lower

January 27, 2011

The dollar climbed 0.8% against the yen, 0.7% versus the Australian dollar and 0.2% relative to the Canadian dollar but has lost 0.2% against the euro and Swissy and 0.3% relative to sterling.  The dollar edged 0.1% against the kiwi and is flat against the yuan.

Equities rose 1.6% in China, 0.9% in Thailand, 0.5% in Malaysia and Taiwan, 0.4% in Indonesia and 0.2% in South Korea.  In India where markets were closed Wednesday, stocks fell 1.5%.  In Europe so far, the German Dax, British Ftse, and Paris Cac show gains of 0.5%, 0.3%, and 0.2%.

There’s been minimal change in German, British or even Japanese sovereign bonds.  S&P downgraded Japan’s rating to AA- from AA, claiming that Japan’s debt ratio is likely to climb higher than assumed previously.  Moody’s left the rating steady at Aa2.

Oil fell 0.8% to $86.65 per barrel.  Gold rose 0.4% to $1340.10 per ounce.

The Reserve Bank of New Zealand retained its official cash rate at 3.0% as expected.  Two increases have been made in the rate so far, implemented in April and June of 2010.

Bank Negara Malaysia left its key interest rate at 2.75%.  The rate was not changed at the prior meeting in November but was raised by 25 basis points each in March, May and July of 2010.

Japan’s customs clearance trade surplus of JPY 728 billion in December was 34% higher than a year earlier and exceeded forecasts of around JPY 500 billion.  The surplus in 2010 of JPY 6.77 trillion was 2.5 times greater than that in 2009 with on-year gains of 24.4% in exports and 17.7% in imports.  However, 2010 exports were still 10.4% lower than their level in 2006.  The seasonally adjusted trade surplus in December was JPY 707 billion, 32% wider than in November.  Export volumes were 8.7% higher in 4Q than a year earlier, down from on-year advances of 18.6% in 3Q and 24.2% in full-2010.

In Britain, the CBI monthly survey of U.K. retailers showed a sharper-than-feared drop to 37 in January from 56 in December.  Value added taxes were lifted to 20% from 17.5% this month.  George Soros at the Davos World Economic Forum warned of the possibility of a double-dip British recession and felt that the situation there was more precarious than in the euro area.

The German states of Hesse, North Rhine Westphalia, Brandenburg and Saxony each reported that consumer prices had dropped 0.5% on month in January.  On-year inflation was marginally higher, nevertheless, but non-energy inflation is hovering below 1.0%.

Economic sentiment in the euro area slipped a tenth to 106.5 in January.  Analysts were looking for a reading closer to 106.9.  Still, sentiment exceeded its July 2010 level — that is from six months earlier — by 5.5 points.  In the latest month, industrial sentiment rose 1.1 points, but retail sector sentiment fell to 0.1 from 4.5 in December.  Construction sentiment went up half a point but remained very depressed.  Sentiment in services and among consumers fell by 0.4 points and 0.2 points.  A separate business climate index improved to 1.58 in January from 1.38 in December and 0.97 in November.

Euroland’s index of leading economic indicators recorded a solid 0.8% advance in December after rising 0.6% in November.  The ECB quarterly lending survey results revealed little change in bank credit standards. 

Swedish consumer confidence improved more than anticipated to 23.7 in January from 20.8 in December.  Unemployment, however, unexpectedly rose to 7.4% in December from 7.1% in November.  And Swedish PPI inflation accelerated sharply in December to 4.3% from 2.2% in the year to November.  Finnish consumer confidence improved in January.

French consumer confidence ticked down a point to 85 in January.  Portuguese consumer sentiment weakened by 0.4 to minus 50.6.  Spanish retail sales were 4.4% lower in December than a year earlier, and jobs fell by 1.3%.  Irish retail sales in December were 3.1% below a year earlier.

South African producer price inflation decelerated more than forecast to 5.8% in December from 6.2% in November. Brazil’s jobless rate of 5.3% last month was down from 5.7% in November.

On-year WPI inflation for primary goods in India increased to 17.3% in the week of January 15 from 17.0% the week before.

South Korean consumer confidence slid a point to 108 in January.  South Korea’s current account surplus was 9.3% wider in December than in November and averaged $2.35 billion per month in 2010.

The U.S. will be releasing data today on durable goods orders, pending home sales, jobless insurance claims.  The Chicago Fed manufacturing index and Kansas City Fed index are also due.

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

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