Better Market Tone of Yesterday Holding So Far… A Big ECB 3-Year Infusion of Bank Liquidity Helped

December 21, 2011

Equities in the Pacific Rim mostly rose, advancing 4.6% in Taiwan, 3.4% in South Korea and India, 2.1% in Australia, 2.3% in Singapore, 1.9% in Hong Kong, 1.5% in Japan and 1.4% in Malaysia.  An exception to the trend was a 1.6% drop in Chinese share prices, but in Europe, stocks have recovered by a further 0.8% in Paris, 0.7% in Frankfurt, and 0.6% in London.

All is quiet on the Korean front.  The won is 2.3% stronger against the dollar from its low on Monday.

The greenback weakened against commodity-sensitive currencies, easing 0.6% against the Australian dollar and by 0.5% versus the loonie and kiwi.  The dollar is unchanged against the yen and Swissie but down 0.2% relative to the yuan and sterling and off 0.1% against the euro.

Oil and gold prices rose 0.6% and 0.7% overnight to $97.81 per barrel and $1628.10 per ounce.

Whereas 10-year German bunds rose three basis points, British gilts fell by 4 bps and Japanese JGBs are steady.

The ECB’s first 36-month long-term refinancing operation put EUR 489.2 billion into the money market, 67% more than analysts were forecasting.

Minutes from the Bank of England’s December 7-8 meeting revealed a unanimous 9-0 vote to retain present settings of 0.5% on the Bank Rate and a GBP 275 billion ceiling on the asset buying program.  Officials felt no need to fine tune policy, although several policymakers observed a deterioration of growth prospects, a risk of lower-than-forecast inflation, concern about credit supply and a belief that more quantitative easing could become warranted.  One member of the policy committee separately conceded that Britain already could be in technical recession.

British public finances for November were reported.  Public-sector net borrowing of GBP 15.231 billion was somewhat less than forecast, while the public sector net cash requirement of GBP 10.622 slightly surpassed expectations.  Debt rose to 62.8% of GDP from 62.3% in October and 57.5% a year earlier.

British consumer confidence according to the GFK gauge worsened two points to a negative reading of 33 in December.

Italy confirmed a 0.2% contraction of real GDP last quarter.  The 0.2% growth from 3Q10 was half of what analysts expected.  Capital spending, personal consumption, and government spending all declined.  Italy is back in recession.

The euro area’s index of leading economic indicators was unchanged in November after dipping 0.1% in October.  The index of coincident indicator was also flat last month.

Germany reported more import price inflation in November than expected.  The index rose 0.4% on month and by 6.0% on year.  That’s down from 6.6% in August and 12.0% at the end of 2010.  Import price inflation excluding mineral fuel products edged just 0.1% higher and slowed on on-year terms to 3.2% from 3.8% in the year to October.  Export prices firmed 0.2% and 2.9% on year.

Danish consumer confidence weakened by 0.6 points to a reading of negative 9.8 in December.  Swedish consumer confidence was steady this month at negative 7.4.  Swiss M3 growth slowed to a 12-month increase in November of 7.2% from 8.1%. Icelandic CPI inflation edged up a tenth percentage point to 5.3% in December, and the growth of wages also ticked 0.1 higher, reaching 9.0%.

Japan’s customs clearance trade posted a JPY 685 billion deficit in November versus a JPY 158 billion surplus a year earlier.  Exports were 4.5% lower than a year ago, whereas imports advanced by 11.4%.  The seasonally adjusted deficit of JPY 538 billion was 76% greater than forecast and the cyclical high so far. 

New Zealand recorded a larger current account deficit of NZD 4.6 billion in the third calendar quarter of 2011.  Such equaled 4.3% of GDP versus a 2Q deficit of 3.7% of GDP.  New Zealand’s terms of trade (export/import price ratio) has crested, and export demand is softening.

Australia’s Westpac index of leading economic indicators edged up 0.1% in October after falling by 0.5% the month before.  Malaysian CPI inflation eased to 3.3% last month from 3.4% in October.  The Malaysian jobless rate also fell, reaching 3.0% after 3.3%.

Japan’s government did not change its overall economic assessment this month but did downgrade business spending.  Officials are expected to formally submit a revised forecast of marginally negative economic growth this fiscal year.  The Bank of Japan completed its 2-day Policy Board meeting without changing policy but issued a downgraded assessment just as it had done in November.

The Czech National Bank as expected left its two-week repo rate unchanged at 0.75%.

U.S. existing home sales data, which will include extensive (likely downward) benchmark revisions and Canadian retail sales figures will be released later today.  So will Belgian business confidence and euro area consumer confidence.

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

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