Concern over Chinese Growth and U.S. Fiscal Cliff Threat

November 28, 2012

Mounting risk aversion has sent the euro lower and the yen higher.  Commodities, stocks, and sovereign debt yields are lower.

  • The Shanghai Composite index fell another 0.9% and further below the key 2000 level to 1974.
  • The 10-year Japanese JGB yield dipped a basis point to a 9-year low of 0.72%.
  • At $1.2900 per euro, the common European currencies has dropped 0.8% since touching a high of $1.3009 yesterday.
  • The yen has risen 0.3% and is again shows an 81 handle against the dollar.
  • Compared to Tuesday closings in New York, the dollar is up 0.2% against the euro and Swissie and 0.1% relative to the loonie and sterling.  The Aussie dollar is unchanged, while the kiwi has dipped 0.1%.
  • Ten-year British gilt and German bund yields are down by six and five basis points.
  • Oil prices fell 0.6% to $86.68 per barrel.
  • The price of gold dipped 0.2% to $1742.10 per ounce.
  • Japan’s Nikkei fell 1.2%.  Stocks in Indonesia, South Korea and Hong Kong dropped by 0.8%, 0.7%, and 0.6%.
  • European share prices have so far lost 0.9% in Madrid, 0.3% in Paris, London, and Milan, and 0.2% in Frankfurt.

Markets continue to react to Senate Majority leader Harry Ried’s downbeat remarks yesterday about a lack of progress in fiscal cliff negotiations.

The semi-annual U.S. Treasury Report on foreign exchange market conditions called the Chinese renminbi “significantly undervalued” but did not declare the Chinese government a “currency manipulator.”  Mitt Romney had promised to make that declaration as soon as possible to expedite his ability to slap trade restrictions on the world’s second largest economy.

The EU yesterday reached an accord on Greek debt.  Today brought news of EU approval of plans to restructure troubled Spanish banks.  Worries about the fiscal cliff and the speed of any Chinese economic revival have for now pushed European issues out of the spotlight.

The Bank of Thailand, which last cut interest rates on October 17, left the one-day repo rate unchanged at 2.75%.  Analysts had not been predicting a further reduction.  The Central Bank of Brazil concludes a two-day interest rate policy meeting today.

Construction completions in Australia advanced 1.7% last quarter, which was less than forecast but more than seen in the second quarter of 2012.

The robust Korean won got a boost from news that South Korea had registered a $5.8 billion current account surplus in October, similar to September’s figure.  Filipino GDP growth of 1.3% on quarter and 7.1% in the year to 3Q12 surpassed analyst expectations.

Euro zone M3 money growth accelerated to a four-year high of 3.9% in October versus 2.6% and 2.9% in the years to September and August.  The on-year pace in August-October was 3.1%.  M1, short-term deposits of less than a year, and marketable instruments all contributed the faster rise in M3 last month.  Credit growth remained stagnant, however.  Private sector credit posted a year-over-year drop of 1.4%, a shade more than seen in September.  Loans to the private sector dropped 0.7% on year, with those to non-financial corporations posting a drop of 1.8%.

Among German states reporting November CPI figures this morning, North Rhine Westphalia and Saxony saw unchanged inflation of 1.9% and 2.0%, respectively.  The Hessian rate eased 0.2 percentage points to 1.8%, and Brandenburg’s inflation softened to 1.5%.  Core inflation continues to run below total inflation.

Irish retail sales increased 1.7% on month in October, lifting the 12-month rate of increase to 3.1%.  Spanish retail sales registered a 12-month drop of 9.7% in value terms and 8.4% on a volume basis in October.

Dutch business sentiment improved 0.7 points to a reading of minus 7.0 in November.  Hungary recorded a 10.5% jobless rate in August-October.  Icelandic CPI inflation accelerated from 4.2% in October to 4.5% in November.

Sweden recorded a current account surplus of SEK 66.4 billion last quarter, which was 8% wider than in 2Q.  Much stronger net investment income outweighed the impact of smaller surpluses in net services and merchandise trade.

The U.S. will be releasing new home sales data today, and the Fed Beige Book of regional economic trends arrives.  But the main interest will be focused on any remarks related to ongoing fiscal talks.

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

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