Dollar Down Despite Concern over Libya

February 23, 2011

Libya’s turmoil, where Qaddafi clings to power, should help the dollar in two ways: by spawning generalized flight to the safety of Treasury securities and by raising concern about Euroland’s troubled southern tier, which imports most of Libya’s oil exports.  Nonetheless, the dollar fell overnight by 0.7% against sterling, 0.6% versus the euro, 0.5% against the Australian dollar,0.2% relative to the Swissy, and 0.1% against the yuan, kiwi, and Canadian dollar.  The yen is also soft, edging 0.1% lower against the dollar.

Stocks fell by 0.8% in Japan, 1.7% in Taiwan, 1.1% in Pakistan, 0.6% in Singapore and India, 0.4% in South Korea and Hong Kong, and 0.2% in Australia.  In Europe, the German Dax and British Ftse have so far lost 0.4% and 0.6%.  Exceptions to the downtrend include gains of 0.7% by Indonesian stocks and 0.4% in New Zealand and China.

Oil advanced by a further 0.4% to $95.82 per barrel.  The largely unspoken worry is that social protests spread to Saudi Arabia.  Gold is 0.1% firmer and again above $1400 at $1403.10 per ounce.

The 10-year British gilt yield rose seven basis points, while its Japanese counterpart eased two basis points.

Sterling was buoyed by the release of Bank of England policy meeting minutes that revealed a third vote in favor of a 25-basis point rate hike to 0.75%.  Spencer Dale became the first internal committee member, that is a career central banker, to join the rate hawks.  Weale and Sentance are both external members of the committee, and Sentance upped his recommended rate hike to 50 basis points.  The six-person majority favoring a 0.5% Bank Rate conceded that a better case for tightening is indeed coming together.  Adam Posen, the committee’s most dovish member, retained a vote to boost the limit on asset buying to GBP 250 billion from the present GBP 200 billion but admitted to also becoming more concerned about the outlook for inflation.

British mortgage loans in January totaled 28,932, only 0.1% greater than in December and slightly less than anticipated.

Industrial orders in the euro area jumped by a bigger-than-expected 2.1% in December following gains of 1.4% in October and 2.2% in November.  Orders rose 2.4% in 4Q or 9.8% at an annualized rate, and they were 18.5% greater in December than a year earlier.  Orders for capital goods increased 3.7% in the most recent month.  There were wide differences across Euroland members in December orders.  Such fell 2.9% in Germany, 2.2% in Portugal, 12.4% in Ireland, 0.1% in Spain, and 4.4% in Greece, for instance, but rose by 9.1% on month in Italy, 7.5% in France, 9.7% in the Netherlands, and 6.8% in Finland.

Japan recorded a JPY 471 billion customs trade deficit last month.  Exports were up only 1.4% on year versus a 12.4% advance in imports.  The seasonally adjusted surplus of JPY 192 billion was down from JPY 580 billion in December.  On-year export volume growth of 2.3% was down from 11.4% in the year to December and 24.2% in 2010 as a whole.  Japanese corporate service prices slid 0.3% in January.  Not since last June have they recorded a monthly increase.  The 12-month rate of decline was 1.1% in January.

Australian labor costs went up 1.0% last quarter and 3.9% on year.  Construction completions increased 0.4% between 3Q and 4Q and were 8.7% greater than in the final quarter of 2009.

Consumer prices in Singapore advanced 1.6% last month and accelerated to a 12-month rise of 5.5% from 4.6%.  That was the highest on-year comparison in two years.

French consumer prices fell 0.2% last month and remained at a lower-than-forecast 1.8% on-year pace of rise.  Core inflation was just 0.7%.

Italian consumer price inflation picked up to 2.1% in January from 1.9% in December according to the final reading of this index.

The Swiss PPI/import price index edged up 0.1% in January and decelerated to no change in on-year terms from 0.3% in the year to December.

Dutch consumer spending was 1.0% greater than a year earlier in December.  Norwegian unemployment slid to 3.4% in November-January from 3.6% in 4Q.

Polish retail sales growth slowed more than forecast in on-year terms to 5.8% in January. Hungarian retail sales in December were 1.7% smaller than a year earlier.

U.S. mortgage applications rose 13.2% in the week of February 18.  Such hit a 27-month low in the previous week.  The 30-year mortgage rate last week of 5.0% was 12 basis points less than in the prior week.  Investors still await U.S. weekly chain store sales and monthly existing home sales figures.  Plosser and Hoenig of the Fed speak publicly.  Trichet of the ECB does, too.

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

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