Several Issues in the Spotlight

October 11, 2012

A slowdown of emerging market growth elicited interest rate cuts in Brazil and South Korea but not Indonesia.

S&P downgraded Spain’s credit rating by two notches.  The move was not surprising.

Italian debt auctions produced mostly lower interest rates and higher bid-cover ratios.  From a size standpoint, the top end of planned sales was achieved.

Australia reported mixed labor statistics.  A 0.3 percentage point increase of unemployment was the main headline.

Japan released soft figures for consumer confidence, bank lending, and machinery orders.  Bank lending by China’s largest banks has weakened.

The U.S. and Canada will be reporting trade statistics.  The only U.S. vice presidential debate is tonight.

Risk aversion lessened slightly.

  • The dollar and yen are a little lower.  The U.S. currency advanced 0.3% against the yen but has lost 0.4% relative to the Aussie dollar, 0.3% versus the Swiss franc, 0.2% against the loonie and 0.1% against the euro, sterling and kiwi.
  • The German Dax, Paris Cac and British Ftse have risen 0.8%, 0.7%, and 0.6%.  Stocks rose 0.5% in Italy, supported by satisfactory sovereign debt auctions but fell 0.4% in Spain, which still hasn’t agreed to a bailout plan.
  • In Asia, share prices dropped 0.6% in Japan, 1.9% in Taiwan, and 0.9% in China but rose 0.9% in India.
  • The ten-year German bund and Japanese JGB yields dipped a basis point.  British gilts are unchanged. 
  • Oil and gold prices rose by 0.8% and 0.4% to $91.94 per barrel and $1771.30 per ounce.

Brazil’s Selic interest rate was cut by 25 basis points, its tenth drop since August 2011 but the smallest reduction in the cycle.  It looks like the central bank interest rate will now stay at 5.75% for a “prolonged period.”  This latest easing was agreed by a split 5-3 vote and was made to promote sagging growth but in the midst of rising inflation.

The Bank of Korea sliced its seven-day repo rate to 2.75% from 3.0%.  Officials revised projected growth downward.  An earlier cut of 25 basis points was implemented in July, and this second move was anticipated by most analysts.

Bank Indonesia’s main interest rate was retained at 5.75%, its level since a 25 basis point reduction last February.

Australia’s jobless rate jumped to 5.4% in September from 5.1% in August.  Employment advanced 14.5K, however, almost four times greater than forecast.  A gauge of expected inflation over the coming year accelerated to 2.6% this month from 2.4% in last month’s survey.

In Japan,

  • Consumer confidence fell to 40.1 in September from a reading of 40.5 in August.  The average reading in the third quarter was also 40.1, down from 40.4 in 2Q.
  • Bank lending grew just 1.0% in the year to September and by 0.8% between 3Q11 and 3Q12.  At least that anemic advance was greater than a 0.3% on-year rise in the second quarter.
  • Core domestic machinery orders fell back 3.3% in August after a 4.6% increase in July.  They were 6.1% lower than in August 2011.  Officials have assumed a decline in 3Q of around 4.8%.  Foreign orders for machinery plunged 14.7% on month and 31.1% on year.
  • Minutes from the Bank of Japan’s September 18-19 Board meeting that expanded quantitative easing were more bearish about inflation prospects.  For Japan, that means persistent deflationary tendencies.

New loans from China’s four biggest banks collectively totaled 24.5% less in September than August, adding to concerns that China’s economy isn’t rebounding quickly from its slump.

Many countries released price data.

  • German consumer prices were unchanged on month and 2.0% higher on year in September.  This confirms the preliminary CPI report.  Inflation had bottomed at 1.7% in June and July.  Non-energy consumer prices posted a 12-month increase of just 1.4%.
  • French consumer prices dropped 0.3% in September and decelerated unexpectedly to a 12-month increase of 1.9% from 2.1%.
  • CPI inflation accelerated in Spain to 3.4% from 2.7% in August.
  • Hungarian CPI inflation also rose, reaching 6.6% after 6.0% in August.
  • Swedish consumer prices climbed 0.4% both on month and over the twelve months to September.
  • Portuguese inflation slowed to 2.9% in September from 3.1% in the prior month.
  • Irish consumer prices dipped 0.1% on month and slowed to a 1.6% 12-month advance from 2.0% in August. 
  • Food prices in New Zealand dropped 0.9% on month and by 0.3% in the year to September.
  • South Korean producer prices increased 0.7% in September but were just 1.0% higher than a year earlier.

India recorded a largest trade deficit of $18.1 billion last month versus $15.7 billion in August.  Malaysian industrial production slipped 0.1% in August and dropped by 0.7% from a year earlier. 

Turkey’s current account deficit in August of $1.2 billion was about 25% smaller than anticipated. 

Greek unemployment rose to 25.1% in July from 24.8% in June.

Ahead of the start of semi-annual IMF/World Bank meetings in Tokyo, G7 finance ministers and central bankers will hold talks today.

The U.S. releases import prices and weekly jobless insurance claims today as well as trade data and the monthly federal budget.  The Ryan-Biden vice presidential debate will be held tonight.  Plosser of the Philly Fed speaks publicly.  Peru’s central bank announces its latest interest rate decision.

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

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