Focus on Europe and China

October 12, 2012

A who’s who list of officials have gathered in Tokyo for the IMF/World Bank semi-annual meetings.  G7 finance ministers are met today on the sidelines.  Investors hope that Spain will finally request an aid package and that China’s central bank will ease monetary policy. 

As in August and September, Japan’s government again lowered its assessment of the Japanese economy, declaring “the economic recovery is in a weak tone recently due to deceleration of the world economy, although some components still show steady movements.”

The dollar is unchanged against the yen and loonie but has eased 0.4% relative the euro, 0.3% versus the Swissie and kiwi and 0.2% against sterling.  The Aussie dollar dipped 0.2%.

European stocks have lost around 0.4%.  Japan’s Nikkei slipped 0.2%, and stocks dropped 0.7% in India.  Equities rose 0.7% in Hong Kong, 0.6% in Indonesia, and 0.1% in China and Australia.

Ten year British gilts, German bunds and U.S. Treasuries show yield declines of four, three and one basis points.

Chinese bank lending slowed to 623.2 billion yuan in September from 703.9 billion yuan in August and around 770 per month on average in the first seven months of 2012.  Lending in January-September was 18% greater than a year earlier.

Japan’s tertiary index, a gauge of service sector activity, increased 0.4% on month and 0.6% on year in August.  For July-August combined the index was 0.1% lower than the 2Q average level and 0.7% greater than a year earlier.

Japanese domestic corporate goods prices firmed 0.3% on month in September, cutting the 12-month decrease to 1.4% from 1.9%.  Import and export prices were respectively 2.5% and 1.6% lower than a year earlier.  In presenting the government’s monthly economic assessment, officials identified relentless yen strength as one of the main downside risks to future growth.

Japanese M2 money posted on-year growth of 2.4% in 3Q, same as in 2Q, while broad liquidity advanced by just 0.4% after a 0.2% uptick between 2Q11 and 2Q12.

U.S. and Ezone producer price data were released.

  • U.S. producer prices in September jumped by a greater-than-forecast 1.1% and were 2.1% higher than a year before, boosted by a 4.7% leap in the energy component from August.  Core PPI was unchanged on month.
  • Euroland producer prices in August rose for a second straight month by 0.6% but was down 2.9% from August 2011.  In 2Q12, the PPI had dropped by 1.6% at an annualized rate, but that will be more than reversed in 3Q.

Peru’s central bank left its key interest rate unchanged as expected at 4.25%.

The Monetary Authority of Singapore announced results of its semi-annual policy review.  In Singapore, interest rate policy is subordinated to an exchange rate target.  A policy of modest and gradual appreciation was not modified.  Officials expect an elevated inflation rate for the time being and thus are retaining a policy stance that is somewhat restrictive in spite of slow economic growth.  Third-quarter GDP data was released today, showing a 1.5% quarterly contraction and a rise of 1.3% from 3Q11.  However, the 2Q-over-1Q change of GDP was revised sharply from a 0.7% contraction reported initially to a 0.2% expansion.

France recorded a wider EUR 4.0 billion current account deficit in August following a EUR 2.6 billion shortfall in July.  Italian CPI inflation accelerated 0.2 percentage points to 3.2% last month. Greek import prices shot up 1.6% in August and were 6.9% higher than a year earlier. 

Icelandic unemployment ticked upward to 4.9% in September from 4.8% in August.  The Dutch trade surplus narrowed 29% on month to EUR 2.1 billion in August. Finnish retail sales posted a larger 4.9% 12-month increase of retail sales in August.

Indian industrial production rose much faster than anticipated in August, climbing 2.7% from a year earlier after a 0.2% downtick in the year to July. 

Mexican industrial production was 3.6% higher in August than a year earlier. 

Post-debate surveys found a majority of listeners thinking that Vice President Biden had won his debate with Paul Ryan.

The U. Michigan-Reuters index of consumer sentiment surprised analysts by rising 4.8 points to 83.1 in early October instead of posting a slight decline.  The improvement is said to have reflected a better labor market and housing market.  The U.S. monthly budget data are due later.

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

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