China Releases Data and Raises Reserve Requirements to Record High

June 14, 2011

Stocks recovered as China’s monthly data were near expectations and did not point to excessive slowdown.  Equities advanced 1.5% in China, 1.9% in Thailand, 1.4% in South Korea, and 1.1% in Japan.  European stocks followed Asia’s upbeat cue in spite of ongoing concerns about Greece.  S&P downgraded the Greek sovereign debt rating by three steps to CCC.  The German Dax is up 1.6%, and the Paris Cac has so far risen 1.0%.  The British Ftse has moved 0.4% higher.

The dollar is modestly softer, with drops of 0.4% against the Australian dollar, 0.3% against the kiwi, 0.2% versus sterling and 0.1% relative to the yen, euro, and Canadian dollar.  The dollar is 0.2% firmer against the Swiss franc and steady versus the Chinese yuan in spite of news that the People’s Bank of China has again bumped reserve requirements higher, this time to 21.5% from 21.0%.  The prior increase, also by 50 bps, was announced May 12.  Chinese central bank interest rates were not moved.

Yields on ten-year German bunds, British gilts and Japanese JGBs increased by two basis points overnight.

Oil prices are unchanged at $97.27 per barrel.  Gold edged 0.3% higher to $1520.40 per ounce.

Chinese consumer price inflation accelerated two-tenths to 5.5% in May, highest since July 2008 (just before the Beijing Olympics).  PPI inflation held steady at 6.8%, surpassing expectations of a drop to 6.5%.  Retail sales were 16.9% greater than a year earlier, and Industrial production recorded a 13.3% on-year advance.  Fixed asset investment in January-May was 25.8% greater than a year earlier, accelerating from a 25.4% increase in the first third of 2011.

The Bank of Japan as expected left its overnight money range target at “around zero to 0.1%” and, after six hours and nine minutes of deliberations over two days introduced a new JPY 500 billion asset-based lending credit line to enhance the ability of financial institutions to strengthen growth.  The facility will provide two-year loans at 0.1% that can be rolled over once.  The BOJ’s economic assessment remains the same.  The economy continues to battle supply-side quake-induced headwinds, but a moderate recovery path is likely to regain traction in the autumn.  The BOJ balance sheet amounted to JPY 134.8 trillion on June 10, down from JPY 135.1 trillion at end-May.

Australian business conditions fell four points between April and May to a reading of +1.  Business confidence slid a point to +6.

Food prices in New Zealand rose 0.5% on month and 7.4% on year in May after a 12-month increase of 6.1% in April.

Japanese industrial production growth in April was revised to 1.6% from 1.0% reported initially.  Output was 13.6% weaker than in April 2010.  The inventories-to-shipments ratio soared 14.9% in the month and by 18.9% from a year earlier.  Capacity usage sank 1.1% on month and 20% on year.

Japan’s Ministry of Finance released its quarterly business survey.  Sentiment for large firms plunged to minus 22.0 this quarter from minus 1.1 in 1Q11 but is expected to rebound to +4.4 in 3Q and +11.3 in 4Q11.  In the first half of fiscal 2011 (April – September), profits and sales are projected to fall 12.7% and 1.7%, while investment increases by 11.1%.

The Sri Lankan central bank repo rate was left at 7.0%, a decision that met analyst expectations.

Indian wholesale prices were 9.1% higher than a year earlier in May.  Such exceeded expectations and was up from a 12-month advance of 8.7% posted in April.

British consumer prices rose 0.2% last month and posted a 4.5% on-year increase, same as in April and as analysts had predicted.  Core CPI receded to 3.3% from 3.7%.  Retail price inflation stayed at 5.2%, and RPIX inflation was unchanged at 5.3%.  RPIY inflation ticked down to 3.9% from 4.0%.  Bank of England officials have warned that CPI inflation could hit 5.0% later this year.

Britain’s index of leading economic indicators rose 0.4% in April, same as in March, but the coincident index was unchanged.  The house price index of the U.K. Department of Communities and Local Government slid 0.3% in April from a year earlier after having risen 0.9% in the year to March.  The Royal Institute of Chartered Surveyors house price balance index printed at minus 28% in May after minus 21% in April.

The French current account deficit widened to EUR 4.8 billion in April from EUR 4.1 billion in March.

Swedish consumer prices rose by an as-expected 0.2% in May and recorded a 3.3% on-year increase.  Spanish consumer prices were steady in May and decelerated to a 3.5% 12-month pace from 3.8%.  Core Spanish inflation edged higher, however, to 2.1% from 2.0%.  Finnish consumer prices were also flat in May and recorded a 3.3% on-year advance. Greek import prices rose 0.8% in April and by 8.0% on year.

The Czech current account swung to a CZK 6.7 billion deficit in April from a CZK 1.5 billion surplus in March.

Scheduled U.S. data today include the NFIB index, producer prices, retail sales, business inventories, and weekly chain store sales. Canada will be reporting quarterly capacity utilization. 

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

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