Swissy and Yen Up on Oil Crisis

February 24, 2011

Political chaos in the Middle East has spawned an hysterical oil market, with Brent topping $119.70 at one point and West Texas Intermediate eclipsing $103 amid forecasts of a potential spike above $200 per barrel.  Reassurances from Saudi officials that 1 million barrels per day of Libyan production can be replenished by Saudi Arabia and channeled to importers around the Mediterranean have only slightly calmed the panic.  Who’s to say that Saudi Arabia itself won’t soon become engulfed in the dash for democracy?

The strongest currencies in this oil-obsessed market have been the Swiss franc and yen, each advancing 0.8% against the dollar.  The Swissy reached 0.9241 per dollar, surpassing its 2010 high of 0.9300, and also hit 1.2747 on its euro cross.  The U.S. currency revealed an underlying vulnerability, falling by 0.4% against the Canadian and Australian dollars, 0.2% versus the kiwi, and 0.1% against the euro.  Among all advanced economies, the United States is least committed to ending its dependency on oil.  Disbelief in global warming is one of the core principles of the tea party movement.

Equities continue to struggle as analysts revised their growth forecasts down and inflation projections upward because of the oil market crisis.  Stocks dropped 1.7% in Taiwan, 1.1% in Pakistan, 0.8% in Japan, 0.6% in India and Singapore, 0.4% in Hong Kong, and 0.2% in Australia.  In Europe, the British Ftse and German Dax are off 0.6% and 0.4%.

A likely five-basis point decline in the 10-year Treasury yield is indicated by trading in futures.  Comparable German bund and Japanese JGB yields have slipped two basis points each.

Oil is currently trading 2.9% higher, while gold at $1416.10 per ounce shows a 0.2% uptick.

Investors disregarded news of a further advance in euro area business sentiment to 107.8 from 106.8 last month, 106.9 in December, and 102.2 six months ago.  Industrial confidence increased to 6.5 from 6.1 in January and 5.1 in December.  Consumer confidence rose to minus 10.0 from minus 11.2 in January.  Confidence climbed 1.2 points in services, 0.4 points in retail, and 1.7 points in construction.  A different “business climate index” remained at 1.45, its best reading since May 2000.

Germany released details of its 4Q national income accounts, confirming GDP growth of 0.4% (1.5% annualized) and a calendar day-adjusted on-year pace of 4.0%.  Net exports accounted for more growth than assumed, 0.7 percentage points, as inventories and construction each produced drags on growth of 0.4 percentage points.  GDP expanded 3.5% in 2010 after contracting 4.7% in 2009.  Personal consumption went up just 0.2% on quarter and 1.4% on year.

Australian business investment rose 1.3% last quarter, considerably less than forecast.  The Australian index of leading economic indicators increased 0.7% in December, but the coincident index was unchanged.

In Japan, stock and bond transactions last week generated a JPY 549 billion inflow, almost ten times greater than the prior week’s net inflow.

Hong Kong’s trade deficit of HKD 16.0 billion in January was 46% smaller than the January 2010 deficit.  Exports were 27.6% greater than a year earlier.

Indian primary wholesale price inflation, which is sensitive to food price trends, accelerated to 15.8% in the week of February 12 from 14.6% a week earlier.

South African producer prices jumped 1.1% in January but slid to a 12-month 5.5% rate of increase from 5.8% in December.  January results were above expectations.

Business sentiment in the Philippines softened in the current quarter to a reading of 47.5 from 50.6 in the final quarter of 2010.

In Britain, the CBI monthly survey of retailers revealed a shocking plunge to a reading of +6 in February from +37 in January and +56 in December.  The VAT increase to cut the budget has depressed the index to an 8-month low.

Italian business sentiment printed in February at 103.0 after 103.4 in January, 103.1 in December, 101.7 in November and 100.1 in October.

French consumer confidence stayed at 85 in February, having dipped a point in January and 3 points in December.

Italian retail sales firmed 0.2% in December following a drop of 0.3% in November and a rise of 0.3% in October. On-year growth remains meager.

Finnish business sentiment and consumer confidence rose by 3.0 and 3.4 points respectively to 4.0 and 20.0 in February.

Icelandic consumer price inflation accelerated for the first time in eleven months, reaching 1.9% in February after 1.8% in January, but such was still comfortably below December’s 2.5% reading.

Portuguese consumer confidence rose a half point to minus 49.1 this month.

Brazilian consumer confidence rose a full point to 122.6 in February.

Investors away several U.S. data releases today covering durable goods orders, new home sales, the FHFA house price index and weekly jobless claims.  Bullard of the St. Louis Fed is speaking publicly.  So will German Finance Minister Schauble.  Mexican trade figures are due.

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

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