Risk On ahead of ECB Press Conference and Greek PSI Deadline

March 8, 2012

The U.S. currency has risen 0.6% against the yen.  The dollar otherwise is down 1.2% against the kiwi, 0.7% relative to the Aussie dollar, 0.6% versus the euro, 0.4% against the Swissie and 0.3% versus the loonie and sterling.  The yuan is steady amid chatter that another Chinese reserve requirement cut or modification of yuan flexibility could be in the offing.

Share prices rose 2.0% in Singapore and Japan and are trading up by a similar amount in Frankfurt and Paris.  In other bourses, stocks rose by 1.3% in China, Thaiand, and Hong Kong, 1.0% in Taiwan, 0.9% in South Korea, and 0.7% in Australia and The Philippines.  The British Ftse is 1.2% stronger.

Ten-year sovereign debt yields have firmed four, two and one basis points in Germany, Britain and Japan.

Gold and oil prices climbed by 1.1% and 0.9% to $1703.0 per ounce and $107.08 per barrel.

The Bank of Brazil’s Selic rate was cut by a larger than expected 75 basis points to 9.75% and is at the lowest level since May 2010.  The action followed four earlier cuts of 50 bps each dating back to last August and recent disappointing GDP and industrial production from the world’s sixth largest economy.

The Reserve Bank of New Zealand left its Official Cash Rate at the record low 2.5% as expected.

The Bank of Korea retained a 3.25% seven-day repo rate as expected.

Bank Indonesia’s benchmark interest rate of 5.75% has also been left unchanged, but inflation concerns were expressed.

Japanese revised GDP showed a considerably smaller annualized 0.7% decline in 4Q11 versus an initially reported drop of 2.3%.  GDP was also 0.7% below the year earlier level.  Non-residential investment surged 20.7% annualized, accounting for the improved revision.

Japan reported a record JPY 437 billion current account deficit in January, which compares to surpluses of JPY 304 billion in December and JPY 547 billion in January 2011.  On a seasonally adjusted basis, the current account remained in the black but just barely with a surplus of JPY 116 billion, down from JPY 776 billion in December.

Japan’s economy watchers index, a gauge of retail service sector activity, improved 1.8 points to a reading of 45.9 in February.  That was roughly in line with forecasts and remained below December’s 47.0 score.  The futures economy watchers component climbed above 50 for the first time in five years to a reading of 50.1 after 47.1 in January.  Machinery tool orders in February were 8.6% lower than a year before after posting an on-year drop of 6.9% in January.

German industrial production rebounded 1.6% in January after dropping 2.6% in December.  The bounce-back exceeded expectations and left January output 0.1% below the 4Q11 average level and 1.8% above the level in January 2011.  Production of capital goods jumped 3.5% in January.

The Bank of France reported a one-point dip in French business sentiment to 95 last month.  Analysts expected such to be unchanged from January.  The French trade deficit widened 5.3% last month to EUR 5.32 billion.  Employment last quarter was 0.1% lower than in 3Q in Euroland’s second biggest economy.

Greek unemployment edged up a tenth of a percentage point on month to 21.0% in December.  Such had been 14.8% at end-2010.

Swiss consumer price inflation went deeper into the red, falling 0.9% in the year to February after a negative 0.8% reading in January and a positive 0.5% in February 2011.  Dutch CPI inflation remained at 2.5% last month. 

Icelandic GDP rose 1.9% last quarter, but growth slowed in on-year terms to 2.7% from 3.8% in the year to 3Q11.  The Czech current account deficit last quarter was CZK 17.4 billion, 70% less than the deficit in the third quarter.

Business sentiment in South Africa improved to a reading of 52.0 this quarter from 38.0 in 4Q11.  Factory output in that economy rose 1.7% on month and 2.4% on year in January.

The deadline for Greek bond swaps to be submitted is 20:00 GMT today.  Results will be revealed Friday at 06;00 GMT.  Participation of more than 50% but less than 90%, which is probable, will likely trigger credit default swaps.

The Monetary Policy Committee of the Bank of England just announced that no changes were being made now in policy settings.  The British Bank Rate stays at 0.5%, and the asset purchase program ceiling, which was raised last month, remains GBP 325 billion, a level that will not be reached for two more months.  Minutes of this month’s meeting will be published on March 21.

Next up is the ECB, whose Governing Council is not likely to announce changes either.  That announcement is set for 12:45 GMT and will be followed by a press conference starting at 13:30 GMT at which President Draghi will answer questions.  New quarterly forecasts are due.

Today’s scheduled U.S. data is the labor department weekly figures on jobless insurance claims.  Canada releases housing starts and home price data.  More importantly, the Bank of Canada’s second scheduled interest rate announcement of 2012 is due at 09:00 EST (14:00 GMT).  A policy change is not anticipated.

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

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