Euro Back Above $1.3000

January 3, 2012

The dollar is softer across the board amid cautiously better risk appetite.  Of particular note, the euro firmed another 0.9% overnight, hitting a high of $1.3058 versus last Thursday’s 2011 low of $1.2856.  The greenback also fell overnight by 1.2% against the Australian and New Zealand dollars, 1.0% relative to the loonie, 0.8% versus the Swissie, 0.7% against sterling, and 0.3% against the yen.  The yuan is steady.

Japanese markets remained closed Tuesday but reopen on Wednesday.

Share prices rose by 2.7% in South Korea and India, 2.4% in Hong Kong, 1.6% in Singapore, 1.5% in China and Taiwan, 1.3% in Indonesia, and 1.1% in Australia.  In Europe, the German Dax has so far advanced 1.0%, and the British Ftse is 0.9% stronger.  In France where expectations of a credit rating downgrade persist, however, the Paris Cac is 0.7% lower.

Commodities are sharply firmer. Oil jumped 2.5% and whizzed past $100 to $101.33 per barrel.  Gold strengthened 1.6% to $1591.50 per ounce, $51.60 greater than last Thursday’s close.

The yield on 10-year British gilts rose five basis points, but that on German bunds held steady.

Today’s batch of published manufacturing PMI surveys were mostly better than forecast.

  • The British index rebounded 1.9 points to a reading of 49.6 in December, a three month high.  The 4Q average score of 48.4 was nevertheless the weakest quarterly mean since 2Q09.
  • Australia’s 50.2 reading in December was 2.4 points higher than November’s score and represents a six-month high.  Production and orders improved.
  • The Irish PMI ticked 0.1 of a point higher to 48.6.  Orders and output both contracted amid a further squeeze on profit margins.
  • The Swiss PMI surpassed the 50 breakeven line for the first time since August and, at 50.7, was 5.9 points above the November reading.
  • Although 0.4 points lower than in November, the Saudi Arabian PMI of 57.7 signaled strong activity even as input price strains cooled.
  • Norway’s PMI report disappointed, with the overall index dropping 1.9 points to a 26-month low of 46.6.

Banks in the euro area continue to favor leaving their assets at the ECB rather than extending loans.  EUR 447 billion were put in the deposit facility.  The central bank’s weekly repo operation of EUR 130.6 billion was a bit less than anticipated.

Like Tuesday’s report of a German PMI reading of 48.4 in December, German labor statistics released today showed more resilience than feared.  The jobless rate slid to 6.8% in December following three straight months of 6.9%, and the level of unemployed workers fell by 22K, similar to November’s decline of 23K and a bit more than twice the size of the projected decrease.  Jobs were 1.3% higher than a year earlier, maintaining their recent on-year pace of growth.

Minutes from the Swedish Riksbank’s Executive Board meeting last month when the repo rate was cut by 25 basis points were not as dovish as assumed.  While two of the six policymakers had favored a stronger easing of policy, the majority view appeared to oppose cutting further unless conditions prove worse than assumed.  Rates had not been cut since July 2009 and appear most likely to remain on hold for a while.

Turkish inflation accelerated more than assumed last month.  The CPI’s 12-month advance increased to 10.5%, most in 37 months, from 9.5% in November, and PPI inflation of 13.3% was a percentage point greater than forecast.

Thai PPI inflation picked up to 4.5% in December from 3.5% in November.  Retail sales volume growth in Hong Kong of 16.9% between November 2010 and November 2011 was greater than expected and 1.9 percentage points more than the rise during the year to October.  Indonesian consumer price inflation slowed to 3.8% in December from 4.2% in November.

Australian commodity prices in December fell 1.0% in SDR terms and by 2.5% on an Aussie dollar basis.  In local currency terms, commodity prices were still 10% higher than at end-2010.

Today’s key events in North America will be the release of minutes from the December 13th FOMC meeting and the U.S. manufacturing purchasing managers survey.  Canada’s PMI survey and U.S. construction spending arrive, too.  The Iowan Republican caucus occurs tonight.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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