Higher Bund and Gilt Yields

February 13, 2013

The yields on 10-year sovereign German and British debt jumped by six and ten basis points overnight.  The 10-year Japanese JGB yield slipped a basis point, but futures point to a higher yield in U.S. Treasuries.

The yen strengthened to 92.81 per dollar overnight but is presently 0.2% softer on balance at 93.64.  The U.S. currency shows a rise of 0.5% against sterling but losses of 0.3% versus the euro, 0.2% against the Australian dollar, and 0.1% relative to the kiwi.  The loonie, Swiss franc, and Chinese yuan are steady.

China remains closed for the Lunar New Year holiday.  The Japanese Nikkei fell by 1.0%, while stocks climbed 1.6% in South Korea, 0.9% in Australia and 0.2% in India.  The Spanish IBEX and German Dax are up 0.6% and 0.4%.  The Paris Cac is unchanged, and the British Ftse is off 0.1%.

Oil has firmed 0.2% to $97.70 per barrel.  Gold has eased 0.2% to $1647.20 per ounce.

Released Japanese data showed

  • A 1.4% month-on-month leap in the tertiary index of service-sector activity in December.  It was the biggest gain in a year.  December’s level was 0.8% higher than the 4Q12 average.  The tertiary index climbed 1.4% in 2012 as a whole after a 0.1% uptick in 2011.
  • Domestic corporate goods prices increased 0.4% last month, and their 0.2% on-year decline was the smallest drop since March 2012.  Export and import prices were respectively 0.6% and 0.8% lower than a year ago.
  • The Bank of Japan’s balance sheet ticked higher to JPY 160.9 trillion on February 10 from 159.8 trillion yen at end-January and 158.4 trillion at end-2012.  The central bank is under immense pressure to stimulate the economy quantitatively.  The BOJ Board began a 2-day policy meeting that is not expected to yield a further change in asset buying just yet.

Consumer confidence in Australia shot up 7.7% in February, the largest on-month increase since September 2011, and it reached the strongest level since end-2010.

South African retail sales were 2.3% higher than a year before in December, down from a 3.6% on-year advance in November.

India recorded a $20.0 billion trade deficit last month.  Such compares with an average gap of $16.3 billion per month over the final nine months of 2012.

South Korea’s jobless rate went up 0.2 percentage points to 3.2% last month instead of holding steady as analysts had anticipated.

German wholesale prices increased 0.3% last month, cutting the 12-month rate of increase to 2.3%.  That was the smallest such advance since July and down from 3.2% in December and a recent peak of 4.6% in October.

Euro area industrial production rose more than forecast in December, climbing 0.7%.  That shrunk the 12-month decline to 2.4% from 4.0% in November.  Compared to December 2012, output rose 0.7% in Germany but fell by 6.9% in Spain and 6.6% in Italy.

The Bank of England released its quarterly Inflation Report.  Projected CPI inflation was revised higher.  It’s going to rise in the near term, stay above the 2.0% target over the whole 2-year forecast horizon, and not return to target until early 2016.  Nevertheless officials are not inclined to tighten monetary policy.  Projected economic growth was revised downward and will be still a tad under 2.0% at the end of the forecast horizon.

The Swedish Riksbank left its repo rate at 1.0% and signaled it will likely stay at that level for all of 2013.  There were again two dissents favoring a rate cut now.

The Swiss PPI/import price index ticked up 0.1% in January and was 0.8% above its year-earlier level.  Dutch consumer price inflation rose to 3.0% in January from 2.9% in December, and Dutch retail sales weakened to a 12-month 4.1% decline in December.

The Portuguese jobless rate averaged 16.9% last quarter, up from 15.8% in 3Q12.  Italy’s 3-year sovereign debt auction fetched a higher yield of 2.3%.

Norwegian GDP climbed 0.4% last quarter, including a 0.3% advance excluding offshore oil.  GDP had fallen by 0.6% in the third quarter.

Between December 2011 and December 2012, retail and wholesale sales in Finland rose 2.1% and fell 1.8%, respectively.

On the currency war front,

  • Central bank governors and finance ministers are gathering for a G20 meeting in Moscow that starts Friday.
  • The president of the Swiss National Bank called the franc overvalued and said there’s a distinction between fighting deflation and engaging in currency warfare.
  • There was little further reaction to yesterday’s G7 statement which elicited disparate interpretations and plenty of confusion.
  • New Zealand Finance Minister English said New Zealand lacks the firepower to engage in successful intervention.

The take-away from last night’s U.S. State of the Union address is that the Democrats and Republicans are in no mood to compromise.  The so-called Sequester due March 1 appears unavoidable.  Its a $1.2 trillion ten-year package of budget cuts that is projected to subtract 0.6 percentage points of GDP growth this year. 

The U.S. releases data today on import prices, retail sales, business inventories, and weekly oil stocks and mortgage applications.

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

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