Conflicting Headlines Out of Europe Have Dollar and Stocks Both Weaker

October 20, 2011

Usually, but not so far today, the dollar and equities have moved inversely.  Headlines covering euro debt crisis talks have been all over the map.

  • German Chancellor Merkel and French President Sarkozy still cannot agree on how to lever the EFSF bailout fund upward to more than EUR 1 billion.
  • Sarkozy left talks abruptly without comment.
  • In spite of reported ECB continued opposition to underwriting euro area bonds, a different headline proclaiming that a draft agreement allows EFSF to buy euro bonds in the secondary market.  Euro rises through $1.3800 for a seventh straight day in response.
  • Greek parliament gave some consent to austerity bill, but worker strike continues in second day.
  • Sixth installment of IMF aid to Greece reportedly jeopardized.
  • Stocks recorded substantial declines in Asia.  European bourses are lower on balance.

The dollar shows losses of 0.9% against the Swissie, 0.7% relative to the kiwi, 0.5% against the euro, 0.4% versus the loonie and Australian dollar and 0.1% against sterling.  The yen is steady amid reports that officials are considering how to respond next to their currency’s persistent strength.

Equities fell 3.1% in Thailand, 2.4% in China, 1.7% in Indonesia, 1.5% in Taiwan, 1.8% in Hong Kong, 1.6% in Australia, 0.9% in India, and 1.0% in Singapore and Japan.  The Paris Cac, British Ftse, and German Dax are 0.7%, 0.5%, and 0.4% softer.

The yields on ten-year German bunds and British gilts rose two basis points.  The 10-year JGB is a basis point higher.

Gold sank 1.1% to $1629.50 per ounce.  Oil firmed 0.5% to $86.50 per ounce.

Japan’s index of leading economic indicators in August was revised up 0.5 to 104.3 but remained a tad below July’s reading of 104.6. The 107.6 coincident index was 0.5 higher than July’s score.  Japanese stock and bond transactions with non-residents generated a net JPY 439 billion capital outflow last week after an inflow of JPY 1.846 trillion in the prior week of October 8.  Convenience store sales in Japan were 4.0% lower in September than a year before.

The central bank in The Philippines left its benchmark overnight interest rate unchanged at 4.5%.

The Bank of Brazil cut its key Selic rate by 50 basis points for the second time since August 31st.

Australian business confidence fell nine points to a nine-quarter low of minus 4 in 3Q11.

German producer prices in September reversed August’s drop of 0.3%, producing an unchanged on-year PPI inflation rate of 5.5%.  Energy prices were 11.1% higher than a year earlier, while the 12-month increase for all other prices dipped to 3.1% from 3.3% in August.

The volume of British retail sales advanced 0.6% in September, exceeding expectations, but back data were revised lower.  Sales in 3Q slid 0.2%.  Retail sales in the latest month were 0.6% higher than in September 2010.  The on-year gain excluding automotive fuel was 0.4%.

Despite a 128% monthly jump in the Swiss trade surplus to CHF 1.85 billion in September, the third-quarter CHF 5.3 billion surplus was 14.5% smaller than in 2Q.

Dutch consumer confidence weakened three points to minus 33 in October, and the unemployment rate rose 0.2 percentage points to 5.6% in September.  Sweden’s jobless rate was 7.2% in September.

South African wholesale sales were 7.7% greater than a year earlier in August, improving on July’s gain of 3.3%.

The United States will be releasing the Philly Fed manufacturing index, existing home sales, and the weekly jobless insurance claims figures today.  Turkey’s central bank reports its latest interest rate decision, and a preliminary estimate of euro area consumer confidence arrives.

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

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