Euro Sharply Higher Against Yen

March 7, 2013

The spotlight today has been on central bank activity.

  • Shirakawa’s outgoing Bank of Japan Board stuck to the status quo, but significant further easing is expected next month from the new BOJ leadership team.
  • The European Central Bank also made no changes but accentuated issues that tend to buoy the euro.  Growth forecasts were lowered, but officials spoke of less financial market fragmentation and signs of stabilization.  A gradual recovery after midyear is expected.  There was no let-up in demands for fiscal consolidation and other structural reforms.
  • The dollar has declined 0.8% against the euro and is again weaker than 1.3000 after closing Wednesday at 1.2971 per euro.  The dollar has meanwhile strengthened 0.6% versus the yen to 94.67.
  • Central banks in Britain, Indonesia, and Malaysia also announced unchanged policy stances.  The Bank of England kept a 0.5% Bank Rate and a GBP 375 billion limit on its asset buying program.  Bank Indonesia retained a 5.75% main interest rate level, which such has been since February 2012.  For an eleventh straight policy meeting, officials at Bank Negara Malaysia voted to keep their overnight target interest rate unchanged at 3.0%.

The dollar has eased 0.5% against the Swiss franc but just 0.2% relative to the Canadian dollar and 0.1% versus sterling and the Australian dollar.  The dollar is 0.1% firmer against the kiwi and unchanged against China’s yuan.

Spanish auction results were decent.  S&P revised the outlook on Portuguese sovereign debt to stable from negative.  The yield on 10-year British gilts is seven basis points higher, and those on U.S. treasuries and German bunds are up five bps apiece.  The 10-year Japanese JGB has risen three basis points further to 0.68% from a recent low of 0.61%.

Stocks in the Pacific Rim closed mostly down, with drops of 1.2% in China, 1.6% in the Philippines, 0.8% in South Korea and India, and   0.2% in Australia.  Markets rose, on the other hand, by 0.3% in Japan, 0.5% in Indonesia, and 0.8% in New Zealand.  U.S. stocks are modestly higher.  Ditto for Europe, where gains amount to 0.5% in France, 0.6% in Spain, 0.3% in Italy and Britain, and 0.2% in Germany.

German industrial orders for January are disappointing, with a drop of 1.9% more than offsetting December’s 1.1% increase and leaving a 12-month 2.5% rate of decline.  Demand for German capital goods, the mainstay of that economy, were particularly weak, with a 2.5% drop in domestic capital goods orders and an even larger 3.2% monthly decline in foreign demand in that sector.

Australia’s trade deficit widened 54% to A$ 1,057 billion in January.  Analysts were anticipating a modest drop in the figure.  But Australia also had a piece of good news in its construction purchasing managers index, which jumped from 36.2 in January to a 31-month high of 45.6 in February.

Japanese reserves fell $8.49 billion to $1.259 trillion during February.  Swiss reserves also declined in the month to CHF 427.7 billion from CHF 429.5 at end-January.  Changes in reserves can be a reflection of intervention activity.

The Swiss seasonally adjusted jobless rate stayed at 3.1% last month.  France’s unemployment climbed to 10.6%, a 13-year high, in 4Q12 from 10.3% in 3Q.  Greek joblessness posted a modest 0.2 percentage point dip to 26.4%, which is still a monstrously high level.

U.S. and Canadian trade figures for January were released today.

  • The U.S. shortfall rebounded from $38.144 billion in December to $44.448 billion but was still $7.8 billion lower than in January 2012.
  • Canada posted a small C$ 237 million deficit after a gap of C$ 332 million in December.  January 2012 had seen a surplus of C$ 57 million.  Exports and imports recorded good month-on-month gains of 2.1% and 1.9%.

Canadian building permits rose 1.7% on month in January but fell 4.3% on year.

U.S. labor productivity was revised marginally to show a quarterly drop of 1.9% annualized in the fourth quarter.  Such rose only 0.7% in 2012 as a whole after eking out a 0.6% increase in 2011.  Unit labor costs also went up 0.7% last year after a 2.0% rise in 2011.  Labor costs remain very subdued, hardly the profile of an economy headed for an inflation explosion as the budget deficit Casandras have been warning. 

U.S. jobless insurance claims fell by 7K in the last week to a respectable 340K.  Such averaged 348.75K per week over the four weeks between February 2 and March 2.

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

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