Little Change in Dollar as Draghi Defends Non-Standard Measures

August 29, 2012

The dollar is 0.2% stronger against the euro, Swissie, and yen.  The greenback also eased 0.1% versus sterling and the Canadian, Australian and New Zealand dollars.  The yuan is steady.

In a published interview, ECB Pdt Draghi, who will not be attending the Jackson Hole Symposium this weekend, took on his German and Dutch critics, defending the central bank’s mandateto use “non-standard monetary policy tools” like the proposed conditional purchase of peripheral bonds in order to sustain a strong and stable euro.

Share prices tumbled 1.1% in China, 1.2% in Indonesia, and 0.8% in India.  Other Pacific Rim markets changed only modestly.  Japan’s Nikkei, for instance, firmed 0.4%.  In Europe, stocks dipped 0.4% in Paris, 0.3% in London, 0.2% in Madrid but rose 0.1% in Frankfurt.  The Dow Jones Industrial average slid marginally at the open as the Commerce Department revised 2Q U.S. GDP growth up to 1.7%.

Gold prices are unchanged at $1669.80 per ounce.  Oil is down 0.1% to $96.25 per barrel, with no discernible reaction to Hurricane Isaac, which has halted almost all Gulf Coast production temporarily.  The storm is slamming the Louisiana coast including New Orleans.

The yields on 10-year German bunds and U.S. Treasuries are up a basis point.  !0-year British gilts are steady, and the 10-year JGB is off a basis point. 

Spain received more bad fiscal news, as Catalonia is requesting 5 billion euros of aid.  Italian sales of six-month bills resulted in a significantly lower interest rate of 1.585% than in the prior month’s tender.

Norges Bank, the central bank of Norway, left its policy interest rate unchanged as expected at 1.5%, observing decent growth, low inflation, and a firm exchange rate.

All six German states reported higher on-year inflation in August than July.  The resulting preliminary estimate of CPI inflation was 2.2%, up half of a percentage point.  The data featured intensifying energy price pressure, and the acceleration surpassed expectations.  Consumer prices rose 0.3% on month.  The harmonized CPI inflation rate was also 2.2%, up from July’s 1.9% reading.

German Chancellor Merkel and Italian Prime Minister Monti are holding talks today.

Greek PPI inflation accelerated to 3.8% in July from 2.9% in June. 

French business sentiment as expected scored a 90 in August, up from a reading of 89 in July.

Italian consumer sentiment weakened half a point to a reading of 86.0 in August.  Italian retail sales unexpectedly rose in June, climbing 0.4% and trimming the 12-month rate of decline to 1.9%.

Swedish consumer confidence slipped to a reading of 5.4 this month from 5.6 in July. Icelandic CPI inflation slowed to 4.1% from 4.6% in June.  Danish GDP contracted 0.5% in the second quarter and was 0.9% below its year-earlier level.  The Swiss index of leading economic indicators was more buoyant in August than anticipated, rising to 1.57 from 1.41 in July.

A non-binding censure motion against the Noda government was passed by the upper house of Japan’s Diet. 

South Korea’s current account surplus widened 19% on month to $4.4 billion in July.

Construction completions in Australia dipped 0.2% in the second quarter after a 5.5% increase in 1Q12.  Work done was 11.9% higher than in 2Q11, however.

Mortgage applications in the United States fell 4.3% last week following a 7.4% drop in the week of August 17.  The rate on 30-year fixed mortgage loans slid six basis points to 3.80%.

Revised U.S. national income accounts data bumped 2Q GDP growth higher as expected to 1.7% from 1.5% reported a month ago.  Exports, non-residential investment, and personal consumption increased at annualized rates of 6.0%, 4.2%, and 1.7%.  Residential investment rose 8.9%, but government spending fell by 0.9%.  Inventories exerted a 0.23 percentage point drag on the growth rate.  The core personal consumption price deflation was 1.8% higher than a year earlier.  Real GDP increased 2.3% between 2Q11 and 2Q12.

U.S. pending home sales rose 2.4% in July to their highest level since April 2010.  This news points to a continuing housing market recovery in coming months.  Residential construction, according to the GDP report, went up by 8.9% annualized between 1Q and 2Q and by 10.5% since the second quarter of 2011.

The U.S. Republican national convention began Tuesday.  Keynote speaker Christie stressed candidate Romney’s toughness, strength and competence on economic issues.  Mrs. Romney presented her husband as a compassionate and loyal man in an effort to win back the women’s vote.  The presumed VP nominee, Paul Ryan, speaks tonight.

Canadian producer prices fell 0.5% in July and were just 0.3% higher than in July 2011.  On-year PPI inflation would have been negative 1.2% if the Canadian dollar had not weakened over the past statement year.  The raw materials price index rose 0.9% in July but was 10.0% lower than a year earlier.

Brazil’s monetary policy committee, COPOM, is widely expected to reduce its key Selic interest rate to a record low of 7.5% later today.

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

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