Europe Holds Key to Rest of December

December 7, 2011

Investors are marking time with guarded optimism that the ECB will cut rates tomorrow and that the EU summit will produce substantive policy changes.  The Greek parliament approved an austerity budget for next year. 

Currency moves have been muted.  The dollar is unchanged against the yen, loonie, and kiwi.  The greenback rose 0.2% against the euro and Swissie but has slipped 0.2% relative to the Aussie dollar and by 0.1% versus the yuan and sterling.

Stocks rallied further in the Pacific Rim but show only modest gains in Europe.  Equities climbed 1.7% in Japan, 1.6% in Hong Kong and Thailand, 1.1% in Indonesia and Taiwan, 1.2% in Singapore, 0.6% in China and 0.7% in Australia.  The Paris Cac is 0.7% higher, but the German Dax and British Ftse have risen just 0.3% and 0.2%.

The 10-year German bund yields is five basis points lower.  The 10-year gilt eased two bps, and JGBs are steady.

Oil and gold prices eased 0.1% to $101.22 per barrel and 0.2% to $1728.60 per ounce.

Japanese reserves shot up by a record $94.9 billion in November, reflecting about $118 billion of intervention sales of yen.  The $1.305 trillion level of reserves is $208.5 billion greater than the end-2010 level.

Various sources out of China are warning of a significantly reduced trade surplus.  China will be releasing trade, price, retail sales, and industrial production data at the end of this week.

Japan’s index of leading economic indicators was unchanged at 91.5 in October.  However, when expressed as a diffusion index, such sagged to 22.2 from 30.0 in September and 70.0 in August.  Sub-50 readings on such a basis signal a turn of momentum for the worse.

Australian real GDP advanced by a healthy 1.0% in the third quarter (not annualized) and accelerated to a 2.5% on-year rate of growth.  Strong positive impulses from investment and consumption were mitigated by drags from net exports, inventories, and government spending.  Australia’s construction PMI rose by 4.9 points to a 6-month high of 39.6 in November.

Filipino PPI inflation was merely 0.5% in October.  South Korean M2 money recorded its best on-year advance (4.4%) in eight months during October.

South African retail and wholesale sales respectively decelerated to October-over-October increases of 7.4% and 8.9%.  In the year to September, such had risen 8.3% and 9.5%.

The Icelandic central bank retained a 4.75% benchmark interest rate, noting potential global headwinds.  Icelandic GDP reversed a drop of 3.6% in the second quarter with an advance of 4.7% in 3Q11.  Net exports and personal consumption were the main drivers of growth.

German industrial production outperformed expectations in October, rising 0.8% after a 2.8% slump in September.  Output was still 1.2% below the average 3Q11 level and just 0.3% above the year-earlier level on an unadjusted basis.  Production of capital goods increased 2.2% after dropping 4.5% in September.

British industrial production, in contrast, was weaker than assumed in October, declining 0.7% on month and by 1.7% on year.  For August-October, production fell 0.2% versus the prior three months and by 1.5% on year.  Factory output also dropped 0.7% in October and recorded a year-over-year increase of 0.9% in August-October, down from 2.9% in May-July. 

U.K. shop prices were 2.0% higher than a year earlier in November.

Many other countries in Europe reported industrial production data.  Italy’s output sank 0.9% in October and by 3.2% on year.  Production in Hungary also fell 0.9% that month and was 3.0% greater than a year earlier.  Czech industrial output edged just 0.1% higher in October to record a 1.7% increase from October 2010.  Danish industrial output dipped 0.3% and was 1.2% above its October 2010 level.  Norwegian industrial production sank by 1.8% in October and 5.7% on year.

France recorded a EUR 6.25 billion trade deficit in October, which was slightly bigger than forecast. Swiss unemployment on a seasonally adjusted basis remained at 3.0% in November.  The Czech trade surplus of CZK 25.5 billion in October was 86% wider than a year earlier.  The year-to-date surplus of CZK 160 billion was up 44% on year.  Norway’s NOK 118 billion current account surplus last quarter was 18% bigger than in 2Q11. 

The U.S. monthly budget and consumer credit data get released today.  The Reserve Bank of New Zealand’s interest rate decision is due at 20:00 GMT.  Tomorrow sees rate decisions from the Bank of England as well as the ECB, and the EU summit is on Friday.

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

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