For a Change Some Good News to Lift Risk Appetite

December 20, 2011

The dollar lost 1.0% against the Australian dollar, 0.9% versus the kiwi and sterling, 0.6% relative to the loonie, euro and Swissie, and 0.1% against the yen.  The yuan is steady.  Pre-Christmas thin trading volume has arrived, so feedback from the market needs to be taken with a grain of salt.

The German Dax and Paris Cac are 1.1% and 1.2% higher.  Share prices rose 0.5% in Japan, 0.7% in New Zealand, and 0.9% in South Korea and Malaysia.  Not all bourses did well, however.  The British Ftse is only flat, and stocks fell 1.3% in India, 0.7% in New Zealand, 0.5% in Indonesia, 0.3% in China and 0.2% in Australia.

Oil and gold prices recovered 1.4% and 0.7% overnight.  Gold is back above $1600 per ounce, and oil cleared $95 to reach $95.19 per barrel.

Yields on 10-year German bunds and British gilts advanced by five and three basis points.  The 10-year JGB is 1 basis point firmer.

There were several pieces of reassuring news.

North Korea’s political transition so far seems from the vantage point of the outside world to be going as well as could be expected.

T-bill rates at Spain’s auction of three- and six-month paper were substantially lower at 1.735% and 2.435%, respectively.

The German IFO Economic Institute’s monthly business climate index increased 0.6 points to 107.2 in December instead of dropping that amount as had been forecast.  This was the second rise in a row, suggesting that Germany may be “successfully countering the downturn in Western Europe.”  IFO officials also suggested these results bode well for Christmas sales.  Current conditions were level for a third straight month with a reading of 116.7 versus 118.5 at the end of 2010, and the forward-looking expectations component jumped 0.9 points to 98.4, having bottomed in October at 97.0.  Indices for construction, wholesaling and retail activity each improved in December, while that for manufacturing was steady.

The IFO climate index for German service-sector activity jumped to 19.6 from 15.1 in November.

German consumer confidence held steady at 5.6 instead of dipping lower as analysts anticipated.  German PPI inflation slowed to 5.2% in November from 5.3% in October, 5.5% in September and a 2011 high of 6.4% in April.  Non-energy PPI inflation slid 0.1% on month and to a 12-month increase of 2.6%, down from 3.3% just three months earlier.  Germany’s index of leading economic indicators, which had dropped sharply in both August and September, rose 0.3% in October.

The British Confederation of British Industry monthly survey of retail sector trends produced a surprise 28-point favorable swing to +9 in December after an 8-point drop in November.  December saw the best reading since May.

British consumer confidence according to the Nationwide index recovered four points in November to a reading of 40, marking the first month-on-month improvement since May.

Minutes from this month’s earlier meeting of Australian monetary policymakers in which the Official Cash Rate was cut for a second consecutive month struck a more upbeat tone than had been expected.  Observing several strengths like the continuing mining boom in Australia, some Board members felt that a second cut at this time was unnecessary.  Australia’s finance minister opined that a tight fiscal policy creates scope for looser monetary policy if that becomes needed.

Australia’s index of leading economic indicators rose in October by a decent 0.6%, matching September’s result.

The Swedish Riksbank meanwhile implemented its first interest rate reduction since July 2009, cutting such by 25 basis points as a precautionary move to 1.75%.  After dipping next year to growth of about 1.3%, officials expect Swedish GDP to expand some 2.3-2.6% in the following two years.

Reports out of China suggest that officials will keep their inflation target next year unchanged at 4.0%.  That should be easily attainable and not constrain monetary officials from easing policy further.

A fourth Japanese budget supplement providing post-earthquake extra stimulus was approved.  It totals JPY 2.5 trillion.  The three earlier boosts were delivered in May, July and October and, along with this fourth installment, total JPY 20.6 trillion altogether or roughly $265 billion.

Japan’s all-industry index, a monthly proxy of GDP measured from the supply side of the economy, went up 0.8% in October with support from a 2.2% rise in industrial production and an advance of 0.6% in service sector activity.  Construction, on the other hand, contracted.  The all-industry index was 0.2% above its 3Q average level and also 0.2% greater than in October 2010.  The revised index of leading economic indicators had an October reading of 92.0, down from 92.3 in September and 94.2 in August.

The Swiss trade surplus widened 39% on month in November.  Finnish unemployment eased to 6.2% last month. Italian industrial orders sank by a further 1.6% in October, and Portuguese PPI inflation slowed to 5.2% from 5.5% in October.  Greece posted a EUR 1.5 billion current account deficit in October.  Dutch consumer confidence scored a negative 37 reading in December, which was weaker than assumed.

CPI inflation in Hong Kong settled back to 5.7% in November from 5.8% the month before. Taiwanese export orders were 2.4% greater than a year earlier in November. 

U.S. housing starts, building permits, and weekly chain store sales arrive today.  So do Canadian consumer prices, Mexican retail sales, Brazil’s current account, and the latest interest rate decision from Hungary’s central bank.

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

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