November 2, 2011

The dollar slipped back 0.7% versus the euro, 0.5% against the Australian dollar, 0.4% relative to the yen and Swissie, 0.3% against sterling and 0.1% versus the loonie.  The greenback is unchanged against the yuan and 0.2% firmer relative to the kiwi.

Stocks in the Pacific Rim were widely mixed.  Gains were posted of 1.9% in Hong Kong, 1.7% in China, 2.7% in Sri Lanka, 2.1% in Indonesia, and 1.6% in Singapore.  But Japan’s Nikkei-225 slumped another 2.2%, and share prices fell by 1.1% in Australia, 1.7% in The Philippines, 0.7% in New Zealand, and 0.6% in South Korea.

In Europe, the German Dax, British Ftse, and Paris Cac have lost another 0.1%, 0.3%, and 0.2%.

The yields on 10-year British gilts and German bunds rose by seven and five basis points.  Their Japanese counterpart is off three bps.

Gold prices advanced 1.3% to $1734.30 per ounce. Oil edged 0.2% higher to $92.36 per barrel.

Investors await the results of many events:

  • Today’s FOMC decision,
  • Bernanke’s press conference today,
  • The meeting of G-20 leaders in Cannes on Thursday and Friday,
  • Tomorrow’s first ECB meeting chaired by Mario Draghi,
  • Friday’s Greek parliamentary vote of confidence in Prime Minister Papandreou,
  • Friday’s U.S. labor force survey data,
    • And next Tuesday’s two Greek referendums (one on the October 26 EU deal and the other on Greek membership in the EU). 

The Greek cabinet approved Prime Minister’s proposal to hold voter referendums next week to clarify support for keeping the euro and staying in the EU.

Other meetings planned in Cannes will involve 1) Merkel, Sarkozy, Lagarde, and Draghi and 2) Papandreou, Sarkozy and Merkel.

There is chatter off and on that China plans to provide some seed money for the EFSF.  The bailout fund meanwhile is delaying a EUR 3 billion Irish bond issue.

Two central banks changed key interest rates today.  Neither move was anticipated as analysts predicted unchanged rates in both cases.

  • Sedlabanki of Iceland hiked its benchmark by 25 basis points to 4.75% in a move to fortify the krona.
  • The National Bank of Romania cut its key rate by 25 basis points to 6.0% to add liquidity.

The results of more European manufacturing purchasing managers surveys were reported in countries that had observed All Saints Day on Tuesday.

  • The final euro area reading in the manufacturing PMI was 47.1 in October, down from a preliminary indication of 47.3 and scores of 48.5 in September, 49.0 in August, 50.4 in July and 52.0 in June.  All members of the common currency area had “contractionary” sub-50 readings except Ireland which eked out a 5-month high of 50.1.  47.1 is the worst reading for the whole region since July 2009.
  • Germany’s PMI of 49.1 constitutes a 27-month low as well and represents drops of 1.2 points from September and 5.5 points since June.  One bright spot was that input prices had a sub-50 reading for the first time since November 2009.
  • The French index of 48.5 was lower than the flash indication of 49.0 and the third sub-50 score in a row.  Orders had their weakest reading since May 2009.
  • The Greek PMI sank to a 31-month low of 40.5 from 43.2 in September.
  • Italy’s PMI of 43.3 was 5.0 points below the September level, the greatest on-month deterioration ever.  43.3 is the lowest level since June 2009.
  • Spain’s 43.9 was the sixth sub-50 reading in a row.  Exports and domestic demand are going south fast.
  • Austria’s 48.0 was at a 27-month trough.
  • The Dutch PMI of 48.0 was down from 48.9 in September, 50.7 in August, 51.4 in July and 52.1 in June.
  • Poland posted a rare improvement with a reading of 51.7, rebounding from September’s drop to 50.2 following 51.8 in August.
  • Hungary’s PMI fell to 48.2 from 50.8 in September and 54.4 back in June.

The British construction purchasing managers index climbed to a five-month high of 53.9 in October from 50.1 in September and 52.6 in August.

On-year growth in Japan’s monetary base accelerated to 17.0% in October from 15.8% in 3Q.  The Bank of Japan has recently escalated quantitative easing.  Current account balance held with the BOJ were 84.6% greater than in October 2010.  The BOJ’s balance sheet had JPY 133.0 trillion of assets at end-October.

Australian building approvals slumped much more sharply than expected in September, dropping 13.6% on month and 12.0% on year.

German labor statistics were disappointing.  Unemployment rose 10K in October instead of declining by that amount.  This was the first increase of 2011 and lifted the jobless rate to 7.0% from 6.9% in September.  Employment was unchanged in September.

Hungarian producer price inflation of 4.1% in September exceeded expectations by almost a percentage point.  Romania’s PPI advanced 0.9% on month in September and by 8.1% from a year earlier.  Norwegian unemployment in 3Q stood at 3.2% versus 3.3% in 2Q.

In the U.S., the ADP report of private employment will focus attention on the labor market.  Jobless claims get reported Thursday, followed Friday by the Labor Department’s monthly labor force survey.  Weekly mortgage approvals also get released today, but the main attraction belongs to the Fed.  The FOMC statement will be released at 16:30 GMT, and Bernanke’s press conference begins at 18.15 GMT.

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

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