Six Days and Counting

July 27, 2011

No discernible progress has been reported in the U.S. debt ceiling talks, yet markets are not falling apart.

  • The dollar recovered 0.3% against the euro and edged up 0.1% against the yuan and sterling.  The dollar fell 0.2% against the yen and loonie but is unchanged against the Swiss franc.  Former Japanese Prime Minister Sakakibara predicted the yen will strengthen to 75 per dollar.
  • Ten-year German bund and British gilt yields fell by five and four basis points.  The 10-year JGB is a basis point lower at 1.09%.
  • Stocks were mixed in the Pacific Rim, advancing 1.1% in the Philippines, 1.0% in Indonesia, and 0.8% in China and Thailand but dropping 0.8% in Pakistan and Australia and by 0.5% in Japan.  The German Dax and British Ftse are 0.3% weaker, while the Paris Cac has declined 0.7%.
  • Oil prices continue to remain south of the $100 threshold, falling by 0.7% to $98.91 per barrel.
  • Gold edged up 0.2% to $1622.80 per ounce.

Higher-than-expected Australian CPI inflation last quarter revived the possibility of a near-term interest rate hike, although many analysts tend to think it still isn’t going to happen.  The Aussie dollar hit a 28-year peak of USD 1.1083 and is 0.8% stronger on balance against its U.S. counterpart.

  • Consumer prices rose 0.9% in 2Q, two-tenths more than forecast, and accelerated to a 12-month 3.6% rate of increase from 3.3% in the first quarter and 2.7% in 4Q10, and 1.5% in 2Q09.  Core inflation rose to 2.7% on both closely watched gauges from 1Q readings of 2.2% and 2.3%.  Analysts had expected core to be at 2.5%.  In holding policy steady this month, the Reserve Bank of Australia had singled out this CPI report as likely to exert major influence on future policy.

New Zealand business sentiment continued to improve, rising to 47.6 in June from 46.5 in May.  The kiwi rose 0.5% against the U.S. dollar.  The Reserve Bank of New Zealand policy committee meets Thursday and is not expected to lift its 2.5% Official Cash Rate.

South Korean real GDP increased 0.8% in the second quarter and was 3.4% higher than a year earlier.  These results were close to expectations and represent a deceleration from quarterly and annual growth of 1.3% and 4.2% in the first quarter.

Taiwan’s leading and coincident indices of leading economic indicators were up 0.2% and unchanged, respectively, in June, suggesting some loss of momentum.

Based on regional CPI reports from North Rhine Westphalia, Hesse, Brandenburg, and Saxony, it appears that German inflation in July exceeded street expectations of 0.3% on month and 2.3% on year.  Package holidays and air fares provided much of the upward impetus.

Euro area money and credit growth slowed in June.  M3 was 2.1% higher than in June 2010, down from a 2.5% on-year increase in May, and posted a gain of 2.2% between 2Q10 and 2Q11.  Loans to the private sector slowed to 2.5% from 2.7%, while private credit decelerated to 2.2% from 2.5%.  Marketable instruments, the difference between M3 and M2, slowed sharply to just a 0.5% on-year increase from 2.9% in May.  The ECB Governing Council has already raised its interest rates twice in spite of low growth in money and credit, citing an abundant outstanding stock of liquidity due to several years of strong money creation.

Euroland’s index of leading economic indicators slid 0.3% in June after edging down 0.1% in May.  The index of coincident indicators was flat last month.

German import price inflation continues to recede.  Import prices fell 0.6% in both May and June and were 6.5% higher than a year earlier last month versus a 9.4% on-year advance in April.  Import price inflation peaked at 12.0% last December.  Non-oil import prices were 4.0% higher in June than a year ago.  Export prices were steady on month in June and 3.4% above year-earlier levels.

Italian business sentiment worsened more than predicted in July, dropping for a fourth straight month from 100.5 in June to a 12-month low of 98.5 in July.

Britain’s July CBI industrial trends survey revealed a sharp deterioration of conditions with a reading of minus 10, lowest since April, and eleven points weaker than June’s result.

U.S. mortgage applications, which had leaped 15.5% in the week of July 15, settled back 5.0% last week.  The 30-year fixed rate mortgage climbed three basis points to 4.57%.  Other scheduled U.S. data today include durable goods orders, weekly oil inventories, and the Federal Reserve Beige Book.

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

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