Sterling Buoyed by Unexpectedly Strong British GDP Data

October 25, 2012

Sterling strengthened, and the yen weakened.  The pound gained 0.6% against the dollar.  The yen is 0.4% softer and is holding an 80 per dollar handle.  The U.S. currency has fallen 0.3% against the Canadian, Australian and New Zealand dollars and by 0.2% relative to the euro and Swiss franc.  EUR/USD is hovering around 1.3000.  The yuan strengthened 0.1%.

Japan’s Nikkei advanced 1.1%.  Share prices rose 0.6% in South Korea and 0.4% in Singapore but fell by 0.7% in China and Taiwan and by 0.3% in New Zealand.  In European bourses, stock prices are up 0.5% in Germany and France, up 0.2% in Britain, but unchanged in Spain.

Ten-year British gilts spiked eight basis points higher.  German bund yields rose four basis points, and Japanese JGBs closed unchanged.

Gold and oil prices increased 0.8% and 0.7% to $1715.60 per ounce and $86.30 per barrel.

No deal has been reached yet on extending Greece’s bailout from its creditors.

British real GDP got a big lift last quarter from the London Olympic games, posting a 1.0% non-annualized sequential increase from the second quarter, which was almost twice as much as analysts were expecting.  Production advanced by 1.1% (the first increase since 4Q10).  Services went up 1.3%, while construction sagged (2.5%) sharply for a third straight time.  GDP was unchanged from a year earlier and remains 3.1% weaker than its peak in the the first quarter of 2008.

The Reserve Bank of New Zealand as expected left the Official Cash Rate at a cyclically low 2.5%, but the statement was less dovish about future risks.

Filipino central bank rates were cut as expected by another 25 basis points.  The new repo rate is 5.5%, and the reverse repo becomes 3.5%.  The intent is to promote faster growth in domestic demand, as exports wane.  A significantly larger trade deficit of $1.259 billion was recorded in August with exports off 9% on year versus deficits of $236 million in July and $903 million a year earlier. 

The Swedish Riksbank retained a very accommodative 1.25% repo rate and lowered its predicted future interest rate path.  Growth and inflation forecasts were trimmed, too.

The Conference Board released its Chinese index of leading economic indicators.  Such rose just 0.3% in September following larger gains of 0.7% in July and 1.7% in August.  The index of coincident Chinese indicators increased 0.5%, same as the gain in August.  Speculation is up that a fiscal stimulus in China will be announced soon.

Japanese corporate service prices were unchanged on month in September and recorded their largest on-year drop (0.5%) since February.  Stock and bond transactions last week generated a tiny 6.2 billion yen outflow after a net outflow of JPY 592 billion in the week of October 13.

Singapore industrial production data were very disappointing, dropping 1.8% between August and September following a 2.3% decline the month before and recording a 2.5% on-year decrease.  Analysts had assume output had risen almost 2% on month.

Hong Kong’s trade deficit widened 25.6% on month to HKD 45.2 billion in September. 

Money and credit growth in the euro area remains subdued.  Euroland’s M3 money stock was 2.7% larger in September than a year earlier and posted a 3Q-over-3Q increase of 3.0%.  Private loans were 0.8% smaller than a year earlier.  Mortgage lending was up 0.7% on year, and loans to firms were down 1.4%. 

Italian consumer confidence printed at 86.4 in October after readings of 86.2 in September and 86.1 in August.  Italian retail sales were flat in August and off 1.0% from August 2011.  Italian hourly wages edged 0.1% higher in September and recorded a 1.4% 12-month increase.

Dutch business sentiment weakened a point to negative 7.7 in October. 

Swedish producer prices fell 0.7% on month and 1.9% on year in September.  Swedish M3 money growth decelerated to a 12-month increase of 5.3% in September from 6.1% in April.  Icelandic consumer price inflation ticked down to 4.2% in October from 4.3% in September.

South African producer prices fell 4.0% in September, trimming their on-year increase to a lower-than-forecast 4.2%.

Scheduled U.S. data include pending home sales, the K.C. Fed manufacturing index, durable goods orders, the Chicago Fed National Activity index and weekly jobless insurance claims.  Canada reports average earnings.  Yesterday’s FOMC statement contained no surprises and hasn’t been a factor in trading today.

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

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