Sinking Confidence amid Disinflation

November 12, 2013

The dollar strengthened overnight by 0.7% against sterling, 0.5% versus the yen and kiwi, 0.4% relative to the Australian dollar, 0.2% against the loonie and 0.1% vis-a-vis the euro and Swiss franc.  The yuan remains unchanged.

Pacific Rim equities varied widely.  Japan’s Nikkei jumped 2.2%, and stocks also gained 1.0% in china and 0.9% in South Korea and the Philippines.  But share prices lost 1.4% in Indonesia (depressed by an unexpected central bank interest rate hike there), 1.0% in India, 0.7% in Hong Kong and 0.5% in Malaysia.  Stocks dipped 0.1% in New Zealand and firmed 0.1% in Australia.  In Europe, the direction is down, with losses of 0.8% in Spain, 0.4% in Italy, 0.3% in France and Britain and 0.2% in Germany.

Chatter continues in the wake of yesterday’s lead Financial Times story about widening disagreement at the ECB Governing Council over policy stimulus, with Germany and the Netherlands opposing Draghi’s leadership.

The price of gold is unchanged at $1281 per ounce. Oil dipped 0.3% to $94.85 per barrel.

The 10-year British gilt yield dropped three basis points, whereas Japanese JGBs and German bund yields are each a basis point firmer.

China’s political leadership completed its Third Plenum but has not revealed decisions made on economic policy.

Japanese consumer confidence sank 4.2 points to a seasonally adjusted reading of 41.2 last month, weakest since December 2012.

Australian business confidence plunged seven points to a three-month low of +5 in October.  Business conditions according to the National Australian Banks’s gauge stagnated with a reading of minus 4.  These results depressed the Aussie dollar to a six-week low.

Small business sentiment in the United States according to the NFIB index fell to a 7-month low of 91.6 in October from 93.9 in September, 94.0 in August, and 94.1 in July.

There was notable evidence of disinflation in Britain and elsewhere.

  • U.K. consumer price inflation fell by a half percentage point to 2.2% last month, lowest since November 2009, from 2.7% in September and a peak of 5.2% in September 2011.  Such had been as high as 2.9% in the year to June 2013.  Core CPI inflation slowed to 1.7% from 2.2% in September.  Retail price inflation dropped to 2.6% from 3.2%, and the RPXI 12-month increase of 2.7% was down from 3.2% the month before.
  • British producer output prices recorded an on-year rise of just 0.8% in October, down from 1.2%, and was accompanied by a sub-1% rise of the core index.
  • British producer input prices fell 0.3% on year, a 1.2 percentage point downward swing from the month before.
  • German consumer prices rose 1.2% in the year to October.  There had been no greater 12-month decline since August 2010.  Energy prices dropped 0.5% on year, and the harmonized overall CPI rate was revised down a tenth percentage point to a drop of 0.3% on month and a rise of 1.2% on year.  Consumer price inflation averaged 2.1% in 2011 and 2.0% last year.
  • Italian consumer price inflation edged down a tenth percentage point to 0.8% in October.  Prices dropped 1.0% from the month before.
  • Consumer prices in Cyprus and Portugal fell by 0.5% and 0.2% between October 2012 and October 2013.  Each change showed further disinflation from September’s results.
  • Hungarian CPI inflation slowed to 0.9% in October from 1.4% in September.
  • Sweden’s 12-month CPI inflation rate swung from +0.1% in September to -0.1% in October.

Russian GDP grew just 1.2% on year in October, falling short of analyst expectations.

Japanese M2 money growth accelerated to 4.1% on year in October from 3.8% in 3Q, 3.5% in 2Q, 2.9% in 1Q and 2.5% in full-2012.

Japan’s tertiary index of service sector activity dipped 0.2% in September.  The index was just 0.1% higher than the 3Q mean and 1.1% greater than in September 2012.  The tertiary index had fallen 0.2% in 3Q from 2Q and was 1.0% greater last quarter than a year before.

Japanese machine tool orders swung from a 6.3% year-over-year drop in September to an 8.4% increase in October.

Britain’s index of leading economic indicators leaped 1.5% higher in September, but the index of coincident economic indicators only edged 0.1% higher.

Two British housing market gauges were reported.  The Royal Institute of Chartered Surveyors’ house price balance index printed at 57%, an improvement on September’s 53%.  The ONS house price index, formerly compiled by the Department of Communities and Local Government was 3.8% higher in September than a year before, accelerating from a 3.7% gain in the year to August.

The Bank of France’s business sentiment index, in contrast to aforementioned confidence gauges, improved to a reading of 99 in October from 97 in September.

Bank Indonesia surprised analysts with the fifth reference interest rate hike since June, an increase of 25 basis points to 7.5%.  Indonesia has above-target inflation, a sizable current account deficit, and an exchange rate that has depreciated significantly this year.

The Chicago Fed National Activity Index and weekly U.S. chain store sales data will be reported later today.

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

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