8.9 Earthquake in Northeast Japan, Tsunami Warnings in the Pacific

March 11, 2011

Risk avoidance has been reinforced by Japan’s strongest quake in 100 years and the world’s severest in six years.  Hawaii and other Pacific coasts are under a tsunami warning.  Stocks fell sharply, but the yen is higher on view that quake will generate capital repatriations to Japan.  Other concerns weighing on markets are 1) the uncertain impact of elevated energy and food prices, 2) Saudi Arabia’s planned “Day of Rage” by rebels, and 3) today’s summit of EU leaders that is expected to flop and which has lifted peripheral bond yields.

Japan’s quake near Sendai struck at 14:46 local time, shortly before markets closed, and was followed by a 7.1 aftershock around 90 minutes later.  Stocks dropped 1.7% in Japan, 1.6% in Hong Kong, 1.4% in Malaysia, 1.3% in Indonesia and South Korea, 1.2% in Australian and Thailand, 1.0% in China, and 0.8% in India.  The German Dax and Paris Cac are 1.1% weaker, and the British Ftse has fallen 0.7%.

Ten-year sovereign debt yields have declined by six basis points in Great Britain and by five bps in Japan and Germany.

The Saudi government has taken a no-nonsense stance against protests, firing on protestors.

The yen rose 0.9% against the dollar, which otherwise strengthened 0.4% against sterling, 0.3% relative to the Swiss franc, 0.2% versus the euro and Canadian dollar and 0.1% against the Australian dollar. The yuan is steady, and the kiwi edge up 0.1%.

Oil prices slid below $100, and the Australian dollar is below par against the U.S. currency.  Oil dropped 3.1% to $99.52 per barrel, while gold fell 0.4% to $1406.60 per ounce.

China released several monthly economic indicators, showed solid growth and higher-than-forecast inflation.  The data are somewhat distorted by the Chinese New Year.

  • Industrial production in January-February was 14.9% greater than a year earlier versus a 13.3% advance in 4Q10.
  • CPI inflation remained at 4.9% on year versus forecasts of a dip to 4.8%.  Food prices were 11.0% higher than a year earlier.
  • PPI inflation accelerated to 7.2% in February from 6.6% in January and 5.9% in December, revealing more cost pressure in the pipeline.
  • Fixed asset investment in January-February was 24.9% greater than a year earlier, up from a 24.5% on-year advance in 2010.
  • Retail sales were 15.8% greater than a year earlier in January-February, down from an 18.8% pace in the fourth quarter.

The Canadian jobless rate remained at 7.8% last month.  Employment rose 15K and by 1.9% on year.

German consumer prices rose 0.5% in February and to an on-year pace of 2.1% from 2.0% in January, 1.0% last August and 0.6% in February 2010.  Energy and food prices posted 12-month increases of 10.2% and 3.4%.  Non-energy consumer prices were just 1.2% higher than a year earlier.

The 12-month rise of German labor costs accelerated to 1.1% in 4Q10 from 0.4% in the third quarter.  German wholesale prices climbed another 1.4% in February.  Such rose 19.2% annualized over the past three reported months and by 10.8% from February 2010.

Italian GDP edged only 0.1% higher last quarter and recorded on-year growth of 1.5%.  France’s current account deficit widened to EUR 5.1 billion in January from EUR 4.9 billion in December.

British producer output prices increased 0.5% in February and accelerated to an on-year advance of 5.3% from 5.0% in January.  Core PPI-O inflation was 3.1%.  The producer input price index jumped 1.1% on month and 14.6% on year.  Britain has the most serious inflation problem among major advanced economies.

Peru’s central bank implemented a 25-basis point increase of its monetary policy reference rate to 3.75% following similar moves in January and February.  The central bank had not tightened in the final quarter of 2010 but implemented five increases earlier last year from a low of 1.25%.

Bank Negara Malaysia left its key interest rate at 2.75%.  A doubling of reserve requirements to 2.0% was explicitly not called a shift in policy.

Spanish consumer prices rose 0.1% in February and by 3.6% on year, up from a 3.3% pace in January. Portuguese consumer prices were unchanged in February and 3.5% higher than a year earlier.  Portugal also reported that its GDP had contracted 0.3% last quarter and slowed to an on-year rose of 1.2%, while trade generated a EUR 5.05 billion deficit in the three months to January.  Greek industrial production was 5.2% lower in January than a year earlier, and Irish industrial output that same month was 1.7% greater than a year before. Swedish unemployment last month was at 4.5%.

Czech GDP rose 0.3% last quarter and posted on-year growth of 2.6%, same as in the year to 3Q10.  On-year growth in Czech industrial production accelerated to 16.9% in January from 12% in December. Hungary’s GDP rose 0.2% last quarter and 1.9% from the final quarter of 2009.  Hungarian CPI inflation edged up a tenth to 4.1% in February.  The Danish trade surplus of DKR 9.52 billion in January was almost twice its size in the month before, and Denmark experienced an DKR 8.8 billion current account surplus in the latest month.

Hong Kong industrial output was 5.7% above a year earlier during 4Q10, and producer prices last quarter accelerated to a 7.6% on-year pace. Indian industrial production was 3.7% greater than a year earlier in January, up from gains of 2.5% in December and 2.7% in November but below the April-January on-year increase of 8.3%.  Filipino M3 money grew 9.6% in the year to January with bank lending showing a 12.4% advance.

Scheduled U.S. data today feature retail sales but also include the Labor Department’s JOLTS index, the U. Michigan consumer sentiment index, and business inventories.  German Finance Minister Schaeble has a planned speech.

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

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