Swiss Franc Retreats Further

August 12, 2011

In the face of a multi-pronged official attack on its strength, the Swissy continued to weaken overnight, touching 1.1050 per euro, 8.9% below Tuesday’s peak of 1.0071.  The short selling came in the face of negative Swiss interest rates and rumors that ECB and SNB officials aim to peg the CHF/EUR relationship near 1.15.  The franc is 0.9% weaker against the dollar since Thursday’s close and has lost 8.2% since peaking Tuesday at 0.7066/USD.

Stocks advanced in Europe in spite of disappointing French GDP and euro zone industrial production data.  The German Dax, Paris Cac, and British Ftse show gains of 2.7%, 2.3%, and 1.7%.  In the Pacific Rim, stocks gave back 1.3% in South Korea and India, 1.1% in Taiwan and 0.2% in Japan, but advances were recorded of 1.9% in Singapore, 1.0% in Sri Lanka, 0.8% in Australia, 0.6% in Indonesia, and 0.5% in Malaysia.

The dollar is unchanged against the euro.  It has strengthened 0.8% versus the kiwi, 0.3% against the Australian dollar and 0.2% relative to the loonie, but it’s down by 0.3% against the yen, 0.2% vis-a-vis sterling and 0.1% against the yuan.

The yields on ten-year British gilts and German bunds fell by five and two basis points, while the 10-year Japanese JGB edged up a basis point.

Oil prices slid 0.4% to $85.37 per barrel, while gold is steady at $1752 per ounce.

Euro area industrial production fell 0.7% in June.  Analysts thought such would be unchanged.  Output ended the second quarter 0.4% lower than the period’s average level.  The 12-month rate of increased has dropped to 2.9% from 7.8% in the year to February.  Output declines in June amounted to 3.5% in Portugal, 2.2% in Greece, 1.7% in France, 0.8% in Germany and Spain, and 0.6% in The Netherlands and Italy.

French GDP stagnated last quarter, and the four-quarter increase slowed to 1.6% from 2.1%.  The French budget, which projects a 1.4 percentage point reduction in the deficit-to-GDP ratio this year to 5.7%, has assumed economic growth of 2.0% in 2011.  Such averaged less than that assumption in the first half of the year, and the momentum and outlook are deteriorating.  French banks, which hold a ton of Greek debt, and France’s own sovereign debt rating got caught in the euro crisis cross hairs this week, forcing President Sarkozy to interrupt his vacation to discuss the problem with his advisors.

Late Thursday came news that Peru’s central bank had left its reference interest rate at 4.25% in deference to elevated global uncertainty.

Japanese industrial production advanced 3.8% in July according to revised data.  That was close to the preliminary estimate of 3.9% and followed a 6.2% increase in May.  In spite of this improvement, output fell by 2.0% in 1Q and 4.0% in 2Q, and it was 1.7% lower in June than a year earlier (but 4.5% greater than the 2Q average).  The inventory ratio dropped 7.3% in June, and capacity, which had been crippled in the immediate wake of the earthquake, climbed by 5.2%.

Hong Kong GDP sank 0.5% last quarter, reducing on-year growth from an upward-revised 7.5% in the year to 1Q to a four-quarter pace of 5.1%.  The slowdown exceeded expectations.

China reported weaker-than-assumed money and credit growth in July.  Lending amounted to 493 billion yuan, about 10% less than forecast and down from 634 billion yuan in June, 552 billion yuan in May and 740 billion yuan in April, and a monthly average of 752 billion yuan in the first quarter.  On-year growth in M2 money slowed to 14.7% from 15.9% in June, while M1 growth ofg 11.6% was the weakest of 2011 and down from 13.1% in the year to June.  Chinese authorities continue to place top priority on reducing inflation by cooling down economic growth.

Indian industrial production rose 8.75% in the year to June, accelerating from 5.9% in the year to May.

French consumer prices fell 0.4% in July and to a 12-month increase of 1.9% from 2.1% in the year to June.  Core inflation was only 0.9%, down from 1.2%.  Spanish CPI inflation slowed to 3.1% in July, with a core rate of 1.6%, from 3.2%.  Italian CPI inflation remained at 2.7%.

The Italian trade deficit narrowed 15.4% on month in June to EUR 1.9 billion.  The Dutch trade surplus in the same month declined 3.2% to EUR 3.3 billion.

Greek GDP was 6.9% smaller in the second quarter than a year earlier.  Such was the fifth on-year drop in a row.  Greek GDP was 7.5% lower than a year before in the first half of 2011.  The volume of Norwegian retail sales was unchanged in June and 1.2% greater than a year earlier.

Today’s scheduled U.S. data feature retail sales, the U. Michigan index of consumer sentiment, and business inventories.  In last night’s Republican debate in Iowa, there was a lot of negative back-biting and agreement to oppose any proposed tax increases, even if such constitute only a marginal part of a long-term deficit and debt-reduction strategy.  Texas Governor Perry is poised to enter the race for the Republican nomination, which will crowd the field of candidates even more.

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

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