Swiss Monetary Authorities Ramp Up Actions to Stop Franc’s Rise

August 10, 2011

Share prices in Asia and Europe rose, relieved by the FOMC’s prediction of an exceptionally low fed funds rate until mid-2013.  Apparently investors had imagined a sooner tightening than I had.  The Fed statement also reiterated that principal on maturing securities acquired in QE1 and QE2 would be reinvested. 

The Swiss National Bank, which last week set a goal of quickly increasing sight deposits by CHF 50 billion to CHF 80 billion, bumped that liquidity target up by another CHF 40 billion to CHF 120 billion.  The central bank has additionally intervened, conducting foreign exchange swaps in two rounds.  The franc dropped 0.5% against the dollar.

The Japanese government released an improved economic assessment, upgrading views on industrial production, consumption, and exports but flagging risks posed by exchange market and equity swings.  Finance Ministry officials again engaged in verbal intervention.  The dollar nonetheless lost 0.7% versus the yen.

Share prices advanced by 3.4% in Indonesia, 3.3% in Taiwan, 3.2% in The Philippines, 2.8% in New Zealand, 2.3% in Hong Kong, 2.6% in Australia, 2.5% in Pakistan, 1.6% in India, 1.7% in Thailand, 1.1% in Japan, and 0.9% in China.  In Europe, the German Dax is 1.9% stronger, while the British Ftse and Paris Cac have risen by 0.8% and 0.6%.

The Bank of England published quarterly Inflation Report cut projected GDP growth to 1.4% this year and to 2.7% in 2Q13.  Officials still think CPI inflation could touch 5% in the second half of this year but believe it will be at a sub-target 1.8% by the second quarter of 2013.  Governor King indicate that policy could ease if needed, and the general impression of the Report and his remarks is that it will be a long time before the 0.5% Bank Rate gets raised.

The dollar has risen 0.3% against sterling and 0.2% versus the kiwi, but it has lost 0.2% against the euro, Aussie dollar, and Chinese yuan.  The loonie is 0.1% softer.  A flattened U.S. yield curve may promote the usage of the dollar as a liability currency in carry trades.

Ten-year British gilt, German bund, and Japanese JGB yields have fallen by 11, 5 and 1 basis points, respectively.

Commodity prices are higher.  Oil prices rose 3.6% to $82.18 per barrel.  Gold advanced 0.9% to $1759.10 per ounce.

Japan’s tertiary index, a gauge of service sector activity, jumped 1.9% in June on top of advances of 2.7% in April and 0.8% in May.  June’s index was 1.5% above the 2Q average level and 0.8% higher than in June 2010.  The tertiary index fell by 1.4% in 1Q and by 0.1$% in 2Q.  Japanese domestic corporate goods prices rose 0.2% on month and 2.9% on year in June.  Export and import prices posted monthly declines, however, of 1.3% and 0.6%.

French industrial production was considerably weaker than expected in June, dropping 1.6% from May and slowing to a 2.1% on-year increase.  Factory output, which was expected to dip only 0.1%, instead dived 1.9%.  The French trade and current account deficits in June of EUR 5.8 billion and EUR 3.4 billion were 22.7% and 38.2% smaller than the deficits in May.

Finnish industrial production fell 3.0% in June but was 4.9% greater in the first half of 2011 than a year earlier. Irish industrial output increased 0.5% in June but more importantly was still 0.8% lower than a year earlier.  As a troubled peripheral, Ireland has had to adopt austere fiscal measures.

Final July German consumer price data confirmed a monthly increase of 0.4% but 0.3% after seasonal adjustment.  On-year CPI inflation edged back to 2.4% from 2.3% in May and June.  Year-to-date annualized inflation was 2.4% seasonally adjusted but 1.6% excluding energy. 

China, whose retail sales and industrial production grew somewhat more slowly in July according to previously released data, reported an acceleration of export growth to 20.4% on year and a wider $31.48 billion trade surplus last month.  The surplus had been $22.27 billion in June and $13.05 billion in May, and deficits were recorded back in February and March.

Singapore revised second-quarter GDP growth to a slightly less negative 6.5% after the 27.1% surge seen in 1Q.  Officials look for 5-6% growth in 2011 as a whole.

South Korea’s jobless rate remained at a lowly 3.3% in July, and money growth slowed in June.  These data releases were overshadowed by news that North and South Korea exchanged live fire.  No casualties were reported in this geopolitical hotspot. Malaysian industrial output rose 3.5% on month and 1.0% on year in June.

Norwegian consumer and producer prices were 1.6% and 16.2% higher than a year before in July.  Core CPI was only 1.2%.  Norway’s central bank is expected to announce an interest rate hike today.

Danish consumer prices dipped 0.1% in July and by a tenth percentage point to 2.9% in year-over-year terms. Romanian consumer prices fell 0.4% in July, trimming their 12-month rate of increase to 4.9%.  Portuguese consumer prices eased 0.1% last month and were 3.2% higher than in July 2010.  Core inflation was 2.1%.

U.S. mortgage applications leaped 21.7% last week, as the 30-year fixed mortgage rate fell to 4.37%, a low for 2011.  Scheduled U.S. data releases today include wholesale inventories, the JOLTS index of job layoffs and hirings, and the monthly federal budget.

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

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