Hope Ahead of EU Summit
October 19, 2011
Despite a two-notch downgrade of Moody’s Spanish sovereign debt rating to A1 from Aa2 and a workers strike in Greece, markets today have shown more hope than despair. Several key U.S. economic indicators will be released later, with a potential to change that optimism.
The euro hit an overnight high of $1.3870 and is currently showing a net 0.7% advance. The euro also reached a 5-month high of CHF 1.2470 on chatter that Swiss authorities might adjust their 1.2000 minimum cross rate target still further.
The dollar has loss 0.8% against the Australian dollar, 0.6% versus the kiwi, sterling and loonie, and 0.1% against the yen and Swiss franc. The yuan is steady and still hovering near 6.38 per dollar.
The German Dax, British Ftse, and Paris Cac are 1.3%, 1.0% and 0.9% higher so far. In the Pacific Rim, Japan’s Nikkei (+0.4%) climbed less than several other bourses. Stocks advanced 2.0% in India, 1.8% in Indonesia, 1.3% in Hong Kong, 0.9% in South Korea and The Philippines, and 0.6% in Australia and New Zealand.
German 10-year bund yields jumped 11 basis points. An attempted EUR 5 billion auction earlier today failed to fetch that full amount. Ezone peripheral yields also have climbed, but the 10-year British gilt and Japanese JGB yields slid by three and one basis points.
Oil and gold prices have edged up 0.2% apiece to $88.53 per barrel and $1656.40 per ounce.
The Bank of Thailand did not raise its 3.5% policy interest rate further. There had been increases of 25 basis points at each of the previous seven meetings of the Thai Monetary Policy Committee as well as two other such moves in the summer of 2010.
Published minutes from the Bank of England’s October 5-6 policy meeting reveal a unanimous 9-0 vote to launch QE2 with a GBP 75 billion increase of the asset buying ceiling to GBP 275 billion. Growth in the current quarter is likely to be minimal, if at all positive. Prospects for exports and consumption have worsened. Policymakers discussed other responses — increases of GBP 50 billion and GBP 100 billion — settling on the middle option but remaining ready to do more if needed. Inflation finally moved above 5.0%, but officials expect such to drop sharply next year.
Japan’s all-industry index in August fell by 0.5% and was unchanged from a year earlier. This monthly approximation of GDP had plunged 6.4% in March but recovered almost all of that drop in four ensuing increases. Now momentum seems to be slowing.
The Japanese/South Korean currency swap line has been increased sharply to $70 billion.
China’s index of leading economic indicators firmed 0.5% in August after bigger gains of 0.9% in June and 0.6% in July.
A 0.8% rise of Australia’s index of leading economic indicators for August, in contrast, was the largest rise in eight months.
Construction output in the euro area rose 0.2% in August and was was 1.2% greater in July-August than the 2Q level. In year-over-year terms, construction was 2.5% higher in August versus a 5.2% drop between 2Q10 and 2Q11.
Euroland’s current account deficit was EUR 5.0 billion in size in August versus EUR 6.8 billion in July and EUR 3.2 billion in June. There has not been a seasonally adjusted surplus in at least a year. The unadjusted deficit over the last twelve reported months totaled EUR 61.7 billion versus EUR 26.3 billion that accrued over the twelve months to August 2010. As a share of GDP, the deficit equaled 1.3% in the first quarter of 2011 and then 0.9% in 2Q11.
Italian industrial orders jumped 5.0% in August, 2-1/2 times more than forecast, and 10.5% in on-year terms. Sales went up 4% on month and 12% on year.
South African consumer prices firmed 0.4% in September and accelerated to a 12-month 5.7% rate of rise from 5.3% in August.
Scheduled U.S. data releases today are the Beige Book, consumer prices, housing starts and permits, and weekly oil inventories. Canada’s index of leading economic indicators is due. Interest rate decisions will be revealed by central banks in Brazil and Norway. Analysts anticipate a cut in Brazil but no change in Norway.
Copyright 2011, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Thailand, euro debt talks, Euroland current account