A More Constructive Tone for the Euro

October 14, 2011

Despite the lack of a big breakthrough in resolving the euro area’s debt crisis and a one-notch Spanish credit rating downgrade by S&P, this week’s more hopeful mood among investors has been maintained.  Regional finance ministers meet today as a precursor to a meeting in Paris on the weekend of G20 finance ministers

The dollar has declined 0.5% against the Australian dollar, 0.2% versus the kiwi and loonie, and 0.1% against the euro, which is also 2.0% stronger than last Friday’s close.  The Swissie is steady, and the yen and sterling have eased by 0.2% and 0.1% against the dollar.  The Chinese yuan was fixed slightly weaker for a third straight day.

The Paris Cac and British Ftse have so far risen 1.1%, and the German Dax is 0.8% firmer.  In the Pacific Rim, stocks advanced 2.0% in Thailand, 1.2% in India, and 0.6% in South Korea but fell by 0.9% in Japan, 1.4% in Hong Kong, 0.9% in Australia and 0.3% in Indonesia and China.

Ten-year German bund and British gilt yields increased by six and five basis points, while the Japanese JGB yield remained steady.

Oil prices climbed 1.3% to $85.35 per barrel, and gold rose 0.6% to $1677.70 per ounce.

The Monetary Authority of Singapore, which subordinates discretionary interest rate policy to an exchange rate target band, effectively eased by flattening the slope of that band.

The Central Bank of Chile left its benchmark overnight interest rate at 5.25% as anticipated.

Chinese price, money, credit and reserve data for September were released.  Like trade figures released earlier this week, such provide more evidence of slowing activity.

  • CPI inflation slowed to a 4-month low of 6.1% from 6.2% in August, 6.5% in July and 6.4% in June.  Non-food costs dipped under 3% to 2.9%, while consumer food prices were 13.4% higher than a year earlier.
  • A 6.5% rate of PPI inflation constitutes a nine-month low after 7.3% in August, 7.5% in July and 7.1% in June.
  • M2 money was 13.0% higher than in September 2010, the lowest on-year advance in ten years and down from a 2011 high of 17.2% in January.  The M2 growth target is 16%.
  • Banks lent 470 billion yuan in September, the smallest amount for any month so far this year and 11.7% less than analysts expected.  the 3Q monthly average of 504 billion yuan compares to 642 billion yuan per month in 2Q11 and 665 billion yuan per month in 2010.
  • Chinese reserves fell by $60.8 billion in September, which trimmed the net increase in the third quarter to $4.2 billion.  That was down from $152.8 billion in 2Q, $197.4 billion in 1Q and $448.1 billion in 2010.

On-year growth in September of Japanese M2, M3, M1 and broad liquidity of 2.7%, 2.3%, 5.2% and 0.7% were each similar August results.  Japanese domestic corporate goods prices dipped 0.1% in September and to a 4-month low in on-year terms of 2.5%.  Export prices were 1.8% lower than a year earlier, while import prices were 10.9% higher.  Japanese stock and bond transactions last week generated a JPY 2.308 trillion net capital outflow, which was more than twice as much as seen in the week of October 1.

Singapore real GDP grew 1.3% annualized in 3Q and by 5.9% from the third quarter of 2010.  Those results are a little stronger than analysts were assuming.  Singapore retail sales in September exceeded the year-earlier level by 3.7%.

South Korean export and import prices were respectively 5.8% and 14.0% higher in September than a year earlier.

New Zealand consumer confidence slid 0.4% in October.

Eurostat confirmed that euro area CPI inflation spiked to 3.0% in September from 2.5% in the previous two months.  Consumer prices also rose 0.8% in month-on-month terms, boosted by a 14.1% leap in clothing prices and a 0.9% increase in energy costs.  Higher inflation was widely experienced in the region as attested by the following 12-month rates of change: Italy 3,6%, Germany and Greece 2.9%, Spain and The Netherlands 3.0% each, Finland and Portugal 3.5% and France 2.4%.

The euro area’s seasonally adjusted trade deficit narrowed to EUR 1.0 billion in August from EUR 3.7 billion in July and EUR 2.9 billion in June.  There was brisk monthly advances in exports and imports of 4.7% and 2.7%.  The unadjusted January-August deficit of EUR 23.9 billion remained larger than the year-earlier deficit of EUR 15.3 billion.  Year-to-date growth in exports (15.2%) was only slightly less than the 15.8% rise in imports.

Indian wholesale price inflation ticked down very slightly to a still-high 9.7% in September from 9.8% in August.

The United States has a meaningful slate of economic data releases today, including retail sales, import prices, the U. Michigan consumer sentiment index and business inventories.  Canada’s monthly survey of manufacturing sales and orders gets reported, too.

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

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