Stronger Euro and Commodity Prices

April 8, 2011

Gold at $1471.20 per ounce is at another record peak. Silver hit a 31-year high of $40.23 per ounce. Oil reached a 30-month high of $111.68 per barrel and is 1.1% stronger on the day.

The ECB’s tightening yesterday has buoyed the euro, which at $1.4411 is 0.7% above yesterday’s closing level.  The dollar also fell 0.7% against the Australian dollar, 0.4% relative to the Canadian dollar and Swiss franc, 0.2% against sterling and 0.1% against the yuan.  The weakest major currency has been the yen, down 0.3% against the dollar despite news that yesterday’s 7.1 magnitude earthquake aftershock produced limited additional human and property damage.

Some dollar demand has been generated by intervention sales of own currencies by India, South Korea and Malaysia.

The Nikkei recovered 1.9% on relief that not more property damage had occurred and following yesterday’s dovish Bank of Japan statement.  Share prices rose 0.9% in China, 0.7% in Australia, 0.5% in the Philippines Hong Kong and Singapore and 0.3% in South Korea but fell by 0.7% in India, 0.6% in Thailand and 0.3% in Malaysia.  In Europe, the British Ftse and Paris Cac are 0.8% stronger, and the German Dax has rallied 0.6%.

The 10-year German bund and British gilt yields climbed five and six basis points, but the JGB yield held steady in Japan.

Japan and Germany released February current account figures.

  • Japan’s JPY 1641 current account surplus was 3.0% bigger than a year earlier.  On a seasonally adjusted basis, the JPY 1210 surplus exceeded January’s surplus by 11.1%.  Merchandise exports rose 1.4% on month, while imports slid 2.3%.  The March 1-20 customs trade surplus of JPY 484 billion was 10.5% greater than a year earlier.
  • Germany’s unadjusted current account surplus of EUR 8.9 billion was smaller than a surplus of EUR 10.2 billion in February 2010.  The seasonally adjusted trade surplus of EUR 11.4 billion was smaller than forecast, and its monthly average of EUR 11.6 billion in January-February was down from a monthly pace of EUR 13.5 billion in the final quarter of 2010 but similar to the pace of EUR 11.4 billion in the first quarter of last year.  Merchandise exports rose 2.7% on month in February, while imports (+3.7%) advanced even more rapidly on the month.

British producer output prices increased 0.9% in March and by 5.4% from a year earlier.  Core PPI-O recorded a 3.0% 12-month advance.  Producer input prices jumped 3.7% on month and 14.6% on year.  The core PPI-I on-year pace remained in double digits at 10.2%.  Bank of England officials, who didn’t change their ultra-loose policy yesterday, have maintained that inflation stems from imported commodities and the government’s increase in value added taxation.

As in the United States, Canadian unemployment slid a tenth of a percentage point last month, reaching 7.7%.  Overall employment unexpectedly dipped 1.5K, as a 92.1K drop in part-time workers outweighed an impressive 90.6K jump in full-time positions.  Over the past 12 months, full-time and part-time jobs rose by 1.8% and 1.7%.  That pace beat the 1.0% rise of total U.S. jobs between March 2010 and March 2011.

Japan’s economy watchers index, a barometer of retail sector activity, slumped in post-earthquake March to 27.7 from 48.4 in February.

Despite an 8.6% recovery in February, British real construction output plunged by 18.3% in the three months to February.  U.K. productivity (output per manhour) fell by 0.8% in 4Q10 and was 0.2% lower than a year earlier.  Such plunged 2.4% in the year to 4Q08 and edged only 0.1% higher in the subsequent year to 4Q09.  Unit labor costs recorded a 12-month advance of 0.7% in the year to 4Q10 after gains of 3.2% in 4Q09 and 2.8% in 4Q08.

The Bank of France’s index of business sentiment in industry held steady at 110 for a third consecutive month in March, while the services sentiment index rose to 103 from 102 in February, 101 in January and 99 in December.  The central bank expects French GDP in the first quarter to have risen 0.7%.

There was more evidence of a sizzling Asian economy outside of Japan.  South Korean producer price inflation accelerated to 7.3% last month from 6.6% in February and 6.2% in January. Filipino M3 money rose 9.8% in the year to February.

Swiss unemployment held at a low 3.4% last month.  The Czech jobless rate eased to 9.2% from 9.6% in February.

Several countries reported industrial production.  Romanian output was 12.7% greater than a year earlier in February.  Finnish production was up 5.1% on year.  Swedish industrial output advanced 16.9% on year in February, beating expectations and the 15.3% rise in the year to January.  Swedish industrial orders were 13.7% greater than a year before.  Turkish production decelerated to 13.9% on year from 18.9% in January. Greek output was 4.8% lower than in February 2010.  Dutch production accelerated to a 12-month gain of 9.5% from 7.0% in January. 

Greek consumer price inflation was 4.5% last month.  Hungary’s EUR 816 million trade surplus was more than 50% larger than anticipated in February. Portugal posted a EUR 1.3 billion trade deficit that month, and Iceland ran a ISK 6.5 billion trade surplus in March.

Late yesterday came word that the Central Reserve Bank of Peru had as expected raised its key reference rate by another 25 basis points to 4.0%.  Peru has one of the faster growing economies in Latin America, and officials there worry about a possible rise of expected inflation.

Figures on Canadian housing starts and U.S. wholesale inventories will be released today. European finance ministers are again meeting as concern rises that Spain will be the next domino in the sovereign debt crisis.  President Obama is threatening to veto a temporary spending bill, as a shutdown of government looms for the end of today.

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

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