Dollar Down Ahead of U.S. GDP and Employment Cost Reports

January 28, 2011

The dollar lost 0.6% against the yen overnight and is down 0.4% against the Australian dollar, 0.3% versus the kiwi and Swiss franc, and 0.1% against the euro.  The dollar is up 0.1% relative to the Canadian dollar and pound sterling but steady against the Chinese yuan.

Share prices are mostly lower, with declines of 1.5% in India, 1.1% in Japan, 0.8% in Indonesia, 0.7% in Hong Kong and Australia, 0.5% in Taiwan and Thailand, and 0.3% in South Korea.  Equities firmed 0.3% in China and have so far edged up 0.1% in Germany.  But the British Ftse has fallen 0.8%.

Ten-year sovereign debt yields slid two basis points in Germany and Japan and one basis point in Great Britain.

Oil prices have firmed 0.3% to $85.88 per barrel. Gold is off 0.4% at $1315.00 per ounce, in contrast.

Several Japanese indicators were released, this being near end-month.

  • Retail sales disappointed in December.  Total sales plunged 4.1% on month and to a 12-month 2.0% rate of decline from a 1.5% on-year rise in November.
  • Large-store retail sales were 1.8% lower than a year earlier in December and down 0.5% on year in 4Q as a result.
  • Real household spending declined 3.3% both on month and on year in December.  It was the third month-on-month drop since September.
  • The unemployment rate unexpectedly dropped to 4.9% in December from 5.1% in both October and September.  Jobs were 0.1% greater than a year before, but the job offers/seekers ratio failed to extend its recent recover, instead remaining at 0.57.
  • Consumer prices in December fell 0.3% and by 0.1% seasonally adjusted.  The CPI nonetheless rose 2.0% at a seasonally adjusted annual rate between the end of 3Q and the end of 4Q.  Consumer prices were unchanged from a year earlier in December.  Core inflation (excluding seasonal food) was less negative at minus 0.4% after minus 0.5% in November and minus 0.6% in October.  Consumer prices excluding both food and energy were 0.7% lower than a year earlier.
  • Tokyo consumer prices in January fell by 0.5% (just 0.1% seasonally adjusted, however) and were 0.1% lower than a year earlier.

Euro area retail-sector purchasing manager readings for January were released, showing solid improvement in sales but also intensifying price pressure that the ECB will no doubt not welcome.  Euroland scored a 55.8, best since May 2006 and up from 52.9 in December, 51.3 in November, and 48.0 in October.  The German index printed at 56.5, a six month high, after 54.8 in December.  The French reading was 58.4, best since May 2008, following 54.0 in December, and Italy’s 51.2 score was above the 50 neutral level for the first time in a year.  Italy had readings of 44.7 in November and 48.7 in December.  It looks like Euroland consumption may be finally reviving, but the two-speed nature of activity remains very pronounced in the region.

Austria’s manufacturing PMI jumped to 60.3 in January from 57.7 in December and 55.2 in November, but price components hit record highs.

British consumer confidence was slammed by a 2.5 percentage point increase in January and weakened to a 22-month low of minus 29 from minus 21 in December.  The U.K. Hometrack house price index fell for a seventh straight month in January, dropping 0.5% and by 2.2% from a year earlier.

Euroland M3 growth slowed to 1.7% last month from 2.1% in the year to November.  M3 recorded 4Q10-over-4Q09 growth of 1.6%, matching expectations.  M3 had slid 0.1% between 4Q08 and 4Q09 but still has advanced 6.0% per annum over the five years between 4Q05 and 4Q10.  That’s why ECB officials believe liquidity is sufficient.  The preferred reference guide of long-term monetary growth is a rise of 4.5% per annum in M3.  In December, on-year growth in private loans slowed to 1.9% from 2.0%.  Private credit growth slowed to 1.6% from 1.9%.  Lending to corporations remained negative at minus 0.2%.

Swedish retail sales underperformed expectations in December, falling 0.8% on month and slowing to an on-year gain of 3.1% from 4.7% in the year to November.  Lending to households also slowed in Sweden, dropping to 7.8% from 8.4% in November.  M2 rose 4.1% on year, down from 5.5%.  House price inflation decelerated in Finland to 5.4% last quarter from 7.8% in 3Q10.

Dutch producer price inflation accelerated to 10.8% last month from 9.3% in November.  Greece’s PPI went up 7.6% on year in December, higher than the gains of 5.9% in November or 6.7% in 2010 as a whole. 

Italian consumer confidence had improved four straight months to 109.1 in December but sank to 105.9 in January.  On-year growth in Italian hourly wages remained steady at 1.7% in December.  Hungary’s jobless rate last quarter averaged 10.8%.  Polish GDP grew 3.8% in 2010.  The Swiss index of leading economic indicators edged down less than forecast to an elevated 2.10 in January from 2.11 in December.

Producer prices increased 2.5% in December in Singapore thanks to a 6.7% leap in oil, but the on-year advance was only 0.7% as prices for non-oil items fell 3.3% below their December 2009 level.

Turkey’s trade deficit widened 12% in December.

In Davos, U.S. Treasury Secretary Geithner made upbeat remarks about pulling out of the financial crisis.  Political tensions over how to resolve the Euroland debt crisis persist.

U.S. fourth-quarter GDP due at 13:30 GMT is expected to show an underlying growth rate of between 3.5% and 4%.  The employment cost index will also be released.

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

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