Marking Time Ahead of Bernanke Testimony and U.S. Data Releases

July 17, 2012

Today’s main action will be in the United States.

  • Fed Chairman Bernanke gives the first half of his semi-annual Humphrey-Hawkins testimony at 14:00 GMT before the Senate Banking Committee.  Expectations exist that he may announce or strongly hint at new stimulus.  H-H has through the years not been a typical venue for unveiling policy changes.
  • Scheduled U.S. data arriving today are monthly CPI, industrial production, capacity usage, the National Association of Home Builders index, and Treasury TIC statistics, the Fed Beige book of regional economic trends, and weekly chain store sales.

Overnight, the dollar firmed 0.2% against the yen and 0.1% versus the loonie and kiwi.  It was unchanged against sterling and fell by 0.3% against the Aussie dollar and by 0.1% versus the euro, Swiss franc and Chinese yuan.

Share prices rose 1.8% in Hong Kong, 0.9% in Australia and Vietnam, 0.8% in Indonesia, 0.6% in China and 0.4% in Japan, but bourses in India and New Zealand closed unchanged.  In Europe, the Spanish IBEX climbed 1.0% after a successful government auction of 12- and 18-month t-bills.  The German Dax and Paris Cac have firmed 0.2% and 0.3%, while the British Ftse is 0.4% softer.

Gold (+0.2%) and oil prices (+0.1%) have ticked up marginally to $1594.40 per ounce and $88.53 per barrel.

Yields on ten-year German bunds and British gilts ticked a basis point higher each, whereas the 10-year Japanese JGB dipped a basis point.

There’s been further unsettling banking news.  Moody’s downgraded many Italian banks, and the LIBOR fixing investigation in Britain was expanded to a number of other banks.

British inflation continues to recede faster than anticipated after years of downside stickiness.  Consumer prices dropped 0.4% in June and to a 2.4% 12-month increase from 2.8% in the year to May and 3.0% in the year to April.  Core consumer prices dipped 0.3% on month and to 2.1% on year from 2.2% in May and 2.5% in March.  Retail price inflation slowed to 2.8% from 3.1% in May and 3.5% in April.  The on-year increase of the RPIX slowed also to 2.8% from 3.1%. 

CPI inflation in New Zealand also slowed at a faster pace than expected last quarter.  Consumer prices rose 0.3% in the second quarter and decelerated to a 1.0% on-year increase from 1.6% in the first quarter and 5.3% in the year between the second quarters of 2010 and 2011.

Those analysts who’ve been warning of skyrocketing inflation caused by monetary and fiscal reflation are now speaking in terms of years rather than months.  Of course in the long run, we’re all dead, and that day of reckoning may come sooner than realized as the neglected process of global warming accelerates.

Germany’s ZEW Institute released July measures of investor sentiment toward Germany and the euro area.  The results were mixed.  Germany’s expectations index worsened less than expected, dropping 0.7 points to minus 19.6 after plunging by 40.3 points between April and June, and this suggests a lessening pace of deterioration.  The current conditions index, however, fell 12.1 points (four times more than predicted) to a reading of 21.1.  Euroland’s ZEW indices printed at negative 22.3 for expectations versus minus 20.1 in June and +13.1 in April and minus 79.9 for current conditions after minus 73.2 in May.

Minutes from the Reserve Bank of Australia’s Board meeting of July 3rd explained why policy wasn’t eased further.  Domestic demand is showing a little more momentum in part because of four rate cuts totaling 125 basis points since November, and China’s economy does not appear to be slowing as sharply as feared.  The minutes partly quelled speculation of a rate cut next month and buoyed the Aussie dollar.  Australian motor vehicle sales fell 0.6% in June, reversing about a quarter of May’s increase of 2.3%.

Britain’s ONS house price index, formerly compiled by the Department of Communities and Local Governments, was unchanged on month and up 2.3% on year in May.  The 12-month comparison has improved from 1.4% in April and negative 0.4% in the year to March.

Spain’s trade deficit narrowed 42.4% on month to EUR 1.93 billion in May.  Spain’s government sold EUR 2.6 billion of 12-month bills at an average yield of 3.92%, down from a yield exceeding 5.0% at the June auction.  EUR 0.96 billion of 18-month bills were also sold at a reduced yield. 

Besides the attention on the Fed and U.S. data, markets will be watching the Bank of Canada, which at 13:00 GMT will make its fifth scheduled interest rate policy announcement of 2012.  Analysts do not anticipate a change of the 1.0% target interest rate.

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

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