Markets Pumped by Fed Decision and Greek PSI Rumor

January 26, 2012

There is a stronger risk appetite today.

  • The euro touched a 5-week high of $1.3176 and is 0.3% stronger on balance.
  • The dollar has also slipped 0.6% relative to the Australian dollar, 0.5% versus the kiwi, 0.4% against the Swiss franc, 0.3% versus the loonie, 0.2% against the yen and 0.1% vis-a-vis sterling.
  • The German Dax, British Ftse, and Paris Cac have risen so far by 1.4%, 1.1%, and 0.9%.  Share prices climbed 1.6% in Hong Kong and 0.5% in Indonesia.  Japan’s Nikkei fell 0.4%, and stocks tumbled 1.3% in The Philippines.
  • Gold and oil prices advanced by 1.1% and 0.8% to $1721.50 per ounce and $100.20 per barrel.
  • 10-year sovereign bond yields are five basis points lower in Britain and down two basis points each in Germany and Japan.

Markets continued to be closed in China for the Lunar New Year.  Indian markets also were shut today for Republic Day, which commemorates the implementation of India’s current constitution some 62 years ago.  Australian markets were closed for Australia Day.

The better tone of the marketplace reflects the Fed’s decision to push the horizon of its virtual zero interest rate policy out an additional 18 months to late 2014.  There had been some prior speculation that the date would be moved but not this extensively.  A second boost to market hopes comes from unconfirmed reports that private holders of Greek debt have indicated willingness to accept a sub-4% interest rate, which effectively would imply a haircut for these creditors in the range of 75% or greater.

The Reserve Bank of New Zealand left its Official Cash Rate at 2.5%.  That cyclical low was in place from April 2009 until June 2010 and again since a 50-basis point cut in March 2011.

Germany, France, Italy and Sweden reported consumer confidence measures.

  • German consumer confidence rose to an 11-month high of 5.9 in February from an upwardly revised 5.7 reading in January and a lull of 5.2 in September-November.
  • The French index scored an 81 in January.  Analysts were expecting December’s 80 to be repeated.
  • Italy’s index printed at an unchanged 91.6 in January, failing to improve as forecast.
  • Swedish consumer confidence jumped 6.1 points to minus 1.3.  Street expectations centered on minus 7.0.

South Korean real GDP growth slowed to a quarterly gain of 0.4% in the final quarter of 2011, half of the 3Q pace and down from increases of 0.9% in 2Q and 1.3% in 1Q.  All the major components of demand contracted, but a faster drop in imports than exports enabled GDP to post a small uptick.  GDP was 3.4% greater than a year earlier in 4Q and advanced 3.6% for 2011 as a whole.

Japanese corporate service prices were unchanged on month and up 0.1% on year last month.  The CSP index fell 0.5% on average in 2011, less than declines of 1.3% in 2010 and 2.7% in 2009.  Stock and bond transactions last week generated a small JPY 29 billion net outflow after a big JPY 1.219 trillion inflow in the week of January 14.

Industrial production in Singapore rebounded 7.8% last month after diving 24.5% in November.  Hong Kong’s trade deficit in 2011 of HKD 427 billion was 28% larger than the deficit in 2010 and reflected export and import growth of 10.1% and 11.9%, respectively.  The December deficit was on an annualized pace of HKD 587 billion.

In Britain, the CBI monthly survey of retailers revealed that December’s much-improved reading of +9% was an aberration.  The index sank to minus 22%, lowest since April 2009 and 3 points below November’s minus 19%.

Sweden’s trade surplus totaled only SEK 2.8 billion last month versus SEK 8.9 billion in December 2010.  Exports were 6% lower than a year earlier, while imports were unchanged.  Nonetheless, the 2011 surplus of SEK 77.5 billion was 9% wider than the 2010 surplus.  Swedish producer prices slipped 0.2% in December and fell 2.1% from a year earlier.  Domestic producer prices recorded a 3.1% on-year drop.  Swedish unemployment has stopped dropping, December labor market figures showed.  Danish unemployment of 4.0% last month, in contrast, was less than November’s 4.1% and below expectations. Italian wages stagnated in December and were just 1.4% higher than at the end of 2010.  Irish producer price inflation accelerated to 2.4% in December from 1.9% in November.

South African PPI inflation dipped into high single digits, printing at a lower-than-forecast 9.8% last month versus 10.1% in November.

Several U.S. economic indicators are scheduled for release today:  the index of leading economic indicators, the Chicago Fed’s National Activity Index, new home sales, the Kansas City Fed manufacturing index, durable goods orders, and weekly jobless insurance claims.  Mexican retail sales and wholesale turnover will be reported.  The Davos World Economic Forum continues.

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

Tags: , ,


Comments are closed.