Sterling Weakened After Release of Bank of England Report

February 16, 2011

The pound fell 0.7% against the dollar, depressed by the Bank of England’s quarterly Inflation Report, which predicted sub-2% CPI inflation late next year if rates were to rise as markets are discounting.  Projected British growth was revised downward because of the fiscal austerity.  Higher than expected inflation now and somewhat higher expected inflation do not appear to be persuading a majority of policymakers to tighten soon.

The dollar against other currencies has risen 0.4% versus the Swiss franc and 0.1% against the yen, euro and kiwi.  The greenback is 0.2% lower against the Canadian dollar and off 0.1% against the Australian dollar. 

The Chinese yuan is steady.  Rumors surfaced of Chinese selling of dollars for euros.

In Asia, stocks rose 1.0% in China, 1.4% in Thailand, and 0.6% in Japan but fell 1.1% in South Korea.  The Paris Cac, British Ftse and German Dax have risen 1.0%, 0.6%, and 0.2%.  The Dow is 0.5% stronger.

Oil and gold have firmed 0.7% and 0.1% to $84.93 per barrel and $1375.60 per ounce. 

The yields on ten-year German bunds and British gilts are five basis points lower.

The Bank of Japan’s monthly economic assessment rehashed what had been said in yesterday’s interest rate policy statement, namely that Japan is emerging gradually from the current deceleration phase amid signs of a resumed uptrend in exports and industrial production.

Protests persist in many Middle Eastern countries such as Libya, Bahrain, Yemen and Iran.

Japan’s tertiary index, which measures service-sector activity, fell 0.8% in December and 0.2% in 4Q10, limiting the rise in calendar 2010 to 1.3% after a 5.2% drop in 2009.  The index was 1.8% higher in December than a year earlier.

The Nationwide index of British consumer confidence relapsed to 47 in January from 54 in December.  The drop was greater than forecast.

British unemployment according to the claimant count rose 2.4K last month, its first increase since September and biggest rise since August.  Unemployment had dropped 11.8K during the final quarter of 2010.  The ILO measure of the jobless rate was 7.9% in 4Q versus 7.7% in 3Q, 7.8% in 2Q and 8.0% in the first quarter of last year.  Wage earnings rose 1.8% on year last quarter after climbing 2.1% in 3Q.  Excluding bonus pay, such went up 2.3% in 4Q10 versus 2.2% in 3Q.

Skilled job vacancies in Australia slid 1.2% in February.  Aussie motor vehicle sales dropped 1.9% in January and by 2.8% from a year earlier.

Several U.S. and Canadian indicators have been released.

  • U.S. housing starts jumped 14.6% in January to their highest level since September, but permits slumped 10.4%.
  • U.S. industrial production slid 0.1% compared to an expected rise of 0.5% in January.  Output was 5.2% greater than in January 2011.  Capacity usage eked out a smaller-than-assumed rise to 76.1%.
  • U.S. producer prices advanced 0.8% in January and were 3.6% above a year earlier.  Core PPI rose 0.5% on month and accelerated to 1.6% from 1.3% on the year-over-year comparison.  Energy prices jumped 1.8% after increasing 2.8% in December and 1.8% in November.
  • Canadian factory sales rose 0.4% in December and by 6.2% from a year earlier.  Orders fell 1.9%, however, and were just 1.5% greater than in December 2009.
  • The Canadian index of leading economic indicators firmed 0.3% in January, slightly less than in December.
  • Canadian transactions in securities generated a bigger CAD 11.5 billion inflow in December.  The inflow averaged CAD 8.6 billion per month in 2010 and CAD 8.9 billion per month in the final quarter of last year.
  • U.S. mortgage applications fell 9.5% last week.  The 30-year fixed mortgage rate was steady at 5.12%.

South African consumer prices increased 0.4% in January and accelerated to a 3.7% 12-month rate of increase, highest since July.  South African retail sales increased 1.6% last month and by a greater-than-forecast 8.3% from January 2010.  Turkish consumer sentiment improved slightly to 91.29 in January from 90.99 in December.

The Portuguese jobless rate rose 0.2 percentage points to 11.1% last quarter.  Belgian GDP climbed 0.3% last quarter, less than the 0.4% rise in 3Q, and was 1.8% greater than a year earlier, down from a four-quarter advance of 2.0% between 3Q09 and 3Q10. New car sales in the EU were 1.4% lower than a year earlier in January. 

FOMC minutes get released at 19:00 GMT today.  G20 finance ministers and central bankers will meet in Paris this Friday and Saturday.

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



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