Less Concern about China and Europe –> Risk On

January 17, 2012

Chinese growth slowed less sharply than feared last quarter.  December industrial production and retail sales also eclipsed expectations.

The ZEW Institute released much better-than-forecast measures of investor sentiment toward Germany and the euro area.

British and Euroland consumer price inflation slowed last month.

Like other recent sovereign debt auctions in Europe, Spain’s sales of 1-year and 18-month bills were received well.

A revival of appetite for riskier trades lifted stocks, the euro and bond yields but weakened the dollar.

The greenback has fallen 1.1% against the Australian dollar, 1.0% versus the Swissie, 0.9% relative to the euro and kiwi, 0.5% against the loonie, 0.4% against sterling and even 0.1% versus the yen.  The yuan is steady.

Stocks in the Pacific Rim shot up 4.9% in China, 3.2% in Hong Kong, 2.2% in Singapore, 1.9% in Thailand, 1.8% in South Korea, 1.7% in Taiwan, Australia, India and Pakistan, and 1.4% in The Philippines.  The Japanese Nikkei advanced 1.1%, and in Europe, the German Dax and Paris Cac show gains of 1.7% and 1.4%.  The British Ftse is 0.9% stronger.

The 10-year German bund, British gilt, and Japanese JGB yields have increased by four, three, and two basis points.

Oil and gold prices rose 2.1% apiece to $100.76 per barrel and $1664.80 per ounce.

Chinese real GDP grew 2.0% on quarter and by 8.9% on year in the fourth quarter.  Analysts had projected 8.7% or slightly less.  While the lowest on-year pace since 7.9% in the year to 2Q09, 8.9% represents only a 0.2 percentage point dip from growth of 9.1% in 3Q.  In the meantime, macroeconomic policymakers have started to release the brake, since inflation is now slowing nicely.  Real GDP had climbed 9.8% in the year to 4Q10 and 10.7% between the fourth quarters of 2008 and 2009.  In calendar year average terms, GDP slowed to 9.2% in 2011 from 10.4% in 2010.

Chinese industrial production growth quickened to 12.8% in the year to December from 12.4% in the year to November.  Forecasts centered on a gain of 12.3%.

Chinese retail sales posted on-year growth last month of 19.1%, the most since last January and up from 17.3% in the year to November.  Analysts had predicted a 17.2% increase.

Chinese fixed asset investment grew 23.5% in 2011.  In contrast to the other data, that was slower than expected and down from a 24.5% on-year advance booked over the first eleven months of last year.

The ZEW Institute’s expectations index for the euro area improved 21.6 points in January to a six-month high of minus 32.4.  Analysts were expecting the improvement to be less than six points.  Current conditions worsened to minus 51.8 in January from minus 44.1 in December, however.  For Germany, the ZEW expectations index leaped 32.2 points to minus 21.6, best since July.  Current conditions in Germany went up 1.6 points to a two-month high of 28.4.  These data support the ECB’s contention that Euroland’s recession is likely to be mild in severity and duration.

Harmonized consumer prices in the euro area during December went up 0.3% on month and 2.7%, a downward revision of 0.1 percentage point from the preliminary indication.  Core inflation held at 1.6% for a fourth straight time but increased 0.4% on month.  Energy prices dipped 0.1% and to a 12-month increase of 9.7% from 12.3% in the year to November.

British CPI inflation slowed to an as-expected 4.2% in December from 4.8% in November, and a peak of 5.2% in September.  Core inflation decelerated to 3.0% from 3.4% in November.  Retail prices increased 4.8% on year, down from 5.2% in November and 5.6% in September.  Bank of England officials see a greater chance of sub-2% inflation late next year than of inflation remaining above target throughout the year.

Britain’s index of leading economic indicators slumped another 0.6% in November, twice as much as its decline in October.  The Department of Communities and Local Government’s British house price index was 0.3% lower than a year earlier in November after posting a drop of 0.4% in October.

New Zealand business sentiment swung to negative 3% last quarter from +10% in 3Q11.

The Japanese tertiary index of service-sector activity reversed October’s 0.7% rise, falling subsequently by 0.8% in November.  The October-November average level of this index was just 0.1% above the 3Q mean level.  The wholesale and retail component of the tertiary index plunged 2.8% in the latest reported month.

Finnish PPI inflation was halved to a 12-month increase of 1.8% in December from 3.7% in the year to November.  It was the lowest PPI inflation in 22 months.

The first scheduled Bank of Canada interest rate policy announcement of 2012 is due at 14:00 GMT (09:00 EST).  No change is expected.  The overnight target money rate has been at 1.0% since three consecutive rises of 25 basis points apiece administered in June, July, and September 2010.  Canada will also be releasing data on securities transactions. 

In the United States, the New York Fed releases the Empire State Manufacturing Index.  ECB President Draghi speaks publicly today.

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

Tags: , , ,


Comments are closed.