Wishful Hopes Regarding U.S. and Ezone Debt Talks

July 20, 2011

Tuesday’s improved market tone has been extended.  Investors are hopeful that a senate plan will avert a last minute showdown over the U.S. debt ceiling and are looking for a huge effort to emerge from Thursday’s EU summit to stop debt crisis contagion there.

Symptomatic of less risk aversion,

  • Ten-year sovereign debt yields firmed seven basis points in Germany, four bps in Britain, and two bps in Japan.
  • Oil prices advanced 1.2% to $98.62 per barrel.
  • While gold retreated below $1600/ounce, dropping 0.9% to $1587.50.
  • Stocks rose 1.2% in Japan, 1.8% in Australia, 1.0% in Singapore, 0.7% in Indonesia, and 0.5% in Hong Kong, New Zealand, Malaysia and the Philippines.  The Paris Cac and British Ftse have risen thus far by 1.0% and 0.8%, but the German Dax is just 0.1% firmer.
  • The dollar fell by 0.5% against the euro, 0.4% relative to the Swiss franc, 0.3% against the yen and loonie, 0.2% versus the Aussie dollar and 0.1% against sterling and the yuan.  The dollar edged 0.1% higher against its New Zealand counterpart.

Minutes from the Bank of England MPC meeting of July 6-7 revealed the same mixed voting pattern seen in June and suggest no tightening or easing in the near term.  Weale and Dale again dissented against a 7-2 majority for keeping such at 0.5%.  Posen re-submitted a proposal to lift the asset purchase ceiling of GBP 200 billion to GBP 250 billion, a motion that was again defeated 8-1.  The majority is comfortable with waiting out the current policy stance.  The minutes were on the whole marginally less dovish than a month earlier.  Policymakers still expect to see CPI inflation reach 5.0% later this year despite an unexpected drop to 4.2% in the most recent report.

Australia’s index of leading economic indicators compiled by Westpac and the Melbourne Institute sagged to a 20-month low in May, suggesting sub-3% GDP expansion in the second half of 2011.  The Reserve Bank of Australia hasn’t raised rates since November.  Australian skilled job openings dropped in July by 3.6% in a further sign that the labor market has softened.

China’s index of leading and coincident economic indices each went up 0.5% in May. Malaysian consumer prices rose 0.3% on month and 3.5% on year in June.  Export orders in Taiwan in June were 9.2% higher than a year earlier.

Japanese Finance Minister Noda again complained that the yen is stronger than Japanese fundamentals warrant.

German producer prices edged up 0.1% in June after being unchanged on month in May.  The 12-month 5.6% rate of increase was down from 6.1% in May and 6-something readings in February-through-April as well.  Non-energy producer price inflation eased to 3.7%, while energy posted a 9.9% on-year advance.

Dutch consumer confidence weakened a point to minus 12 in July.  Danish consumer confidence swung from +3.0 in June to minus 0.6, four-month low.

Italian industrial orders rebounded by a greater-than-anticipated 4.1% in May from a 6% drop in April.  Sales, however, fell 1.7% in the most recent report.  Italy’s current account deficit narrowed 9.1% in May to EUR 5.09 billion.

South African consumer prices rose 0.4% in June, producing a higher 5.0% on-year increase after 4.6% in the year to May.

Some scheduled releases today are U.S. existing home sales, Canadian and Mexican wholesale turnover, the Bank of Canada Monetary Policy Report, and consumer confidence in Euroland.  A Brazilian interest rate decision is also awaited, with analysts expected a small advance in the Selic rate.

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

Tags: , ,


Comments are closed.