Dollar Strengthens on FOMC Minutes

January 4, 2013

FOMC minutes released Thursday afternoon in the United States have created new doubt about how long quantitative easing will be sustained, as such revealed split opinion among policymakers.  More than a few expressed mounting concern about the difficulty of eventually reducing the balance sheet and felt it would be prudent to end QE before December 2013.

The U.S. and Canadian monthly labor force surveys will be released at 13;30 GMT.  Several Fed officials — Plosser, Vice Chairperson Yellen, Bullard, Lacker and Cumming — speak publicly today.

The dollar has jumped 1.3% against the kiwi, 1.2% versus the yen, and 1.1% relative to the Australian dollar.  The dollar advanced 0.7% against the Swiss franc but only 0.5% versus sterling and 0.3% against the euro and loonie.  The yuan is unchanged.

Japan’s Nikkei leaped 2.8% in the first trading session of 2013, but most other bourses are lower.  Stocks so far have eased 0.5% in France and Italy, 0.3% in Germany, and 0.1% in Britain and Spain.  In the Pacific Rim, equities closed down 0.4% in Australia, Taiwan, and South Korea, 0.3% in Hong Kong, and 0.2% in New Zealand.  China, which also reopened, edged up 0.1%.  Share prices gained 0.6% in Thailand and the Philippines.

The yields on 10-year German bunds, Japanese JGBs and British gilts are up by 7, 4, and 3 basis points today.

Commodities have lost value.  Gold plunged 2.7% to $1630.00 per ounce, and gold is off 1.3% at $91.70 per barrel.

Euroland’s preliminary estimate of on-year December CPI inflation was 2.2%, unchanged from November but a half-percentage point lower than at the end of 2011.  The bulk of the improvement from a year earlier came in energy, up 5.2% compared to a 9.7% rise in the twelve months to December 2011.  The ECB targets inflation at “below but close to 2.0%,” so inflation remained above target for another year.

German retail sales rose 1.2% in November, reversing a 1.3% monthly decline in October.  The bounce-back exceeded expectations but left sales 0.9% below than year-earlier level.

Service-sector December purchasing manager survey results were unveiled for many economies.

  • The composite Ezone index printed at a 9-month high of 47.2.  That’s a revision from a preliminary estimate of 47.3 but above readings of 45.7 in October and 46.5 in November.  The improvement suggests that the most intense portion of the recession may be over but points to a greater contraction of GDP in the final quarter of 2012 than in 3Q.  The German composite PMI moved above the 50 no-change threshold to 50.3, an 8-month high.  Italy’s 45.7 was an 11-month high.  Spain’s 43.9 reading was at a 9-month peak, and France had a 4-month high on its composite score of 44.6.  Ireland’s 54.2 was solid but nonetheless down from 55.3 and at a 4-month low.
  • The service-sector purchasing managers index for Euroland was 47.8, which is unchanged from the preliminary indicator, up from 46.7 in November and the best score in five months.  Germany’s 52.0 was 2.3 points better than in November and at an 8-month peak.  Spain’s 44.3 constitutes a 9-month high, and Italy’s 45.6 score was the best since October.  The French and Irish readings of 45.2 and 55.8 were 2- and 3-month lows.
  • Britain’s service-sector purchasing managers index fell 1.3 points to 48.9, worst since April 2009.  This strongly suggests that GDP contracted anew last quarter, albeit mildly.
  • Sweden’s service-sector PMI improved by 2.8 points to 49.1, indicating a significantly milder rate of contraction last month.
  • India’s composite PMI of 56.3 and service-sector reading of 55.6 represent respective ten- and 3-month highs.
  • According to HSBC, China’s composite PMI edged up 0.2 points to 51.8 in December, a 5-month high.  The Chinese services-sector reading was 51.7, 0.4 points lower than in November.  The data suggest on-year GDP growth of around 8% in 4Q12.
  • Hong Kong’s private purchasing managers index eased 0.5 points to 51.7.  GDP growth probably edged up a bit last quarter.
  • Japan’s services PMI printed at 51.4 in December, the third above-50 reading in a row and representing a 9-month high.  Japan’s composite index remained below the 50 threshold at 49.3 and was below the November reading of 49.9.  Japan’s recession may be moderating.
  • Australia’s Performance of Services index sank more deeply below 50, dropping to 43.2 from 47.1 in November.  The PSI averaged 43.3 in the second half of 2012.

Bank of England monetary data for November were mixed.  Mortgage approvals climbed more than anticipated to 54.04K, and net consumer credit edged up GBP 0.1 billion instead of sliding marginally.  But net lending to individuals was negative at GBP 0.1 billion, and M4 money posted a 2.8% on-year contraction.

Italian consumer price inflation slid 0.1 percentage points to 2.4% last month but remained unchanged at 2.6% in harmonized terms.   Icelandic producer price inflation accelerated to 2.5% in the year to November.  Romanian PPI inflation fell to 5.4% in November from 6.8% in October.  Irish unemployment of 14.6% was unchanged last month.  So was Denmark’s 6.3% November rate of gross joblessness.

Filipino CPI inflation ticked up a tenth percentage point to 2.9% in December but posted the lowest calendar year average (3.2%) in 2012 since 2007.  Producer prices fell 2.8% in the Philippines during the year to November.

In the U.S., factory orders and service sector PMI data will be reported as well as the monthly jobs data.  Canada releases producer prices in addition to jobs and unemployment.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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