Weaker Yen and Pound

May 21, 2013

A day after suggesting the yen had fallen enough, Japanese Economics Minister Amari retreated, claiming no one really knows how far the yen’s downward correction will go.

Sterling fell in response to lower-than-forecast British inflation in April.  The lower inflation drops, the greater becomes the Bank of England’s leeway to stimulate growth if that is needed.  However, that need has also been lessening.

The dollar advanced overnight by 0.7% against sterling, 0.6% versus the yen, 0.3% relative to the Swiss franc, and 0.2% against the euro, loonie, kiwi, and Australian dollar.  The greenback is 0.1% softer versus the yuan, in contrast.

Share prices are mostly lower, with drops of 0.6% in Australia and India, 0.5% in Indonesia and Hong Kong, 0.3% in Singapore, 0.2% in New Zealand and 0.1% in South Korea.  Stocks edged up 0.1% in Japan and Taiwan and by 0.2% in China.  In Europe, equities are off 0.7% in Italy, 0.3% in France and 0.2% in Germany and Spain.  The British Ftse is 0.2% higher.

The 10-year JGB yield continues to climb, advancing another four basis points to 0.88%, almost twice as high as the 0.45% level on April 4, when the BOJ eased sharply.  The German 10-year bund is steady, and the British gilt yield has eased three basis points.

Countering the drag of sustained Aussie dollar strength was a prime reason for this month’s cut of the Official Australian Cash Rate, according to released minutes released by the Reserve Bank of Australia.  However, the minutes do not imply a follow-up further cut from 2.75%, which is now at an all-time low.  The Conference Board’s indices of Australian leading and coincident economic indicators respectively rose by 0.1% and 0.2% in March, less than their increases in February.

Japanese supermarket sales reverted to a 12-month drop of 1.9% in April from a 1.7% on-year increase the month before.  Japan’s all-industry index slid 0.3% in March and was 1.0% below its year earlier level.  This monthly supply-side proxy of GDP  also had declined in January and so was 0.4% lower in 1Q as a whole after a quarterly 0.3% rise in 4Q12.  Service sector output and construction fell 1.3% and 4.2%.

Hong Kong CPI inflation accelerated more than expected to 4.0% in April from 3.6% in March.  Singapore WPI inflation also accelerated to 0.6% on year last quarter from negative 1.7% in the year to 4Q12.  But expected inflation in New Zealand slowed a tenth of a percentage point to a multi-year low of 2.1%.

German producer prices dipped 0.2% last month and recorded a 12-month increase of just 0.1%, lowest since March 2010 and down from 1.7% in January and 2.4% in April 2012.

British producer output prices edged up 0.1% in April and recorded a smaller 12-month 1.1% rate of increase, down sharply from 1.9% in March.  Core PPI-O inflation was 0.8% after 1.3%.  Producer input prices dropped both on a monthly basis (2.3%) and compared to a year earlier (0.1%).  Both changes had been positive in March.

U.K. CPI inflation slowed 0.4 percentage points last month, twice as much as expected, to 2.4%.  Although above the Bank of England’s 2.0% target, such is down from a peak of 5.2% in September 2011 and the lowest since November 2009.  RPI inflation dropped 0.4 percentage points, too, to 2.9%, while RPIX slowed to 2.9% from 3.3%.  Core CPI of 2.0% is now resting on the target.

The ONS index of house prices, formerly an index compiled by the British Department of Communities and Local Government, accelerated to 2.7% in March from 1.9% in February.  Analysts were anticipating only marginal acceleration.

The French indices of leading and coincident economic indicators rose 0.5% but fell 0.1% in March.

Swedish and Finnish unemployment in April, respectively 8.7% and 8.8%, were more or less as expected.  Swiss M3 money growth accelerated to a double-digit 10.2% 12-month advance in April from 9.9%.  In normal times, Swiss monetary authorities take money growth very seriously, but domestic monetary policy has since September 2011 been subordinated to an exchange rate policy.  Switzerland is still grappling with deflation, so the fast growth in money will be disregarded.

The 12-month drop in Polish producer prices widened to 2.0% in April from 0.6% in March. Polish industrial production fell 2.3% last month after a big increase in March.  The on-year growth of industrial output was 2.7%. 

South Africa’s indices of leading and coincident economic indicators fell in March by 1.1% and 0.4%.

A massively wide tornado near Oklahoma City is believed to have killed over 90 people, many of whom were children in school.  The latest ICSC measure of weekly chain store sales showed a 0.2% uptick, while the Johnson Redbook gauge was 0.5% higher.  Chicago Federal Reserve Bank President Evans, who has a dovish bias, indicated a willingness to discuss a possible modification in quantitative easing.

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

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