Continuing Retreat of Swiss Franc

August 15, 2011

A press report that the Swiss National Bank is seeking permission from the government for it to impose a CHF/EUR ceiling generated further depreciation in the franc, which at overnight lows of 0.8000 per dollar and 1.1460 per euro was 11.7% and 12.1% below last Tuesday’s highs.

Share prices in Asia and Europe overnight were buoyed by better-than-forecast Japanese growth last quarter.  Japan’s Finance Minister Noda engaged in more verbal intervention.  A former finance minister known for hands-on-micro-managing the currency urged follow-up intervention by Japan.  Dollar/yen is unchanged and continues to have a 76 handle.

The dollar is 1.7% higher against the Swissy but down by 0.4% against the Australian dollar, 0.3% versus the euro, 0.2% relative to the Canadian dollar and 0.1% relative to sterling.  The Chinese yuan is steady at 6.3922 per dollar amid higher hopes that officials will allow their currency to rise more quickly.  The kiwi is 0.1% softer.

Stock prices appreciated 3.3% in Hong Kong, 2.6% in Australia, 2.4% in Tawan, 2.3% in Thailand, 1.8% in Indonesia, 1.5% in China, 1.4% in Japan and 1.1% in Malaysia and New Zealand.  India’s market was shut in observance of Independence Day.  In Europe, the German Dax is up 0.9%, while the Paris Cac and British Ftse each show 0.4% gains.  A scheduled meeting tomorrow between French President Sarkozy and German Chancellor Merkel to discuss implementation of the July 21st EU debt deal represents an upcoming danger spot for investors.

Little change has occurred in German, British or Japanese sovereign bond yields today.

Likewise, gold prices are flat at $1742.60 per ounce, and oil has drifted down 0.4% to $85.08 per barrel.  Gold enthusiasts anticipate considerable further appreciation of the yellow metal, with whisper numbers of $2500 by yearend.

Today marks the 40th anniversary of Nixon’s suspension of dollar-gold convertibility, ending the international monetary system that was established after WW2.  This action would be followed by formal dollar devaluations in December 1971 and February 1973 and a shift to floating exchange rates in March 1973.

Japanese real GDP slid 0.3% last quarter, half as much as projected by analysts.  The annualized decline was 1.3%, much less than plunges of 2.5% in 4Q10 and 3.6% in the first quarter of this year.  Compared to a year earlier, real GDP showed drops of 1.0% in both 1Q and 2Q.  Nominal GDP fell 1.4% in the second quarter and by 3.2% from a year earlier.  Breaking down the 1.3% annualized drop in GDP, net exports exerted a 3.0 percentage point (ppt) drag in 2Q, but public sector spending (+0.9 ppts) and inventories (+1.1 ppts) were important sources of growth.  Personal consumption’s contribution was negative 0.2 ppts.  Residential and non-residential investment respectively took away 0.2 ppts and added 0.1 ppts.  The GDP price deflator was 2.2% lower than in the second quarter of 2010.

Australian motor vehicle sales jumped 8.6% last month and were 0.9% greater than in July 2010.  New Zealand’s services index printed at 54.5 in July, 0.2 points less than in June.  Turkey’s 9.4% jobless rate compared to 11.0% a year earlier.  Retail sales in Singapore accelerated to a 10.9% on-year increase in June from 9.6% in May.

The British Rightmove house price index slumped 2.1% on month in August, the largest drop since November, and was 0.3% lower than in August 2010, which was the first on-year decline since September 2009.

The Swiss producer/import price index fell 0.7% in July and was 0.6% lower than a year earlier.  The results nearly matched expectations.  Czech producer prices rose 0.8% on month and 5.4% on year in July.

Swedish industrial production fell 3.3% in June, almost three times more than expected.  The on-year advance was shaved to 6.4%.  Danish producer prices firmed 0.3% in July and by 6.9% on year.  Norway’s trade surplus widened over 50% in July to NOK 38.2 billion, reflecting an 11.5% leap in exports and a 14.6% drop in imports. 

There are three U.S. data releases of interest today:  the New York Fed’s Empire State manufacturing index, the National Association of Home Builders index, and the Treasury Department monthly TIC report on capital flows with non-residents.  Atlanta Fed President Lockhart will be speaking.  Canadian motor vehicle sales are scheduled for release today.

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

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