Sharp Decline in Chinese Yuan to a Four-Month Low

February 25, 2014

The yuan weakened 0.4% against the dollar, arousing some suspicion that Beijing officials may be orchestrating the slide as a protest against rising strains with the United States over a variety of geopolitical matters.  Share prices in China continued their retreat, falling by a further 2.6%.

Bank of England Monetary Policy Committee member Ian McCafferty captured market interest with remarks that a continuing rise of sterling could cause problems for British exports and that expectations by the market of a rate increase in the spring of next year seem not unreasonable.

A mounting corruption scandal in Turkey depressed the lira by about 2%.

Germany’s release of detailed fourth-quarter national income accounts confirmed real GDP growth of 0.4% versus 3Q (1.5% annualized) and 1.3% compared to a year earlier (1.4% if adjusted for variations in the number of working days).  This was the third straight quarter with positive economic growth.  Growth in 4Q was powered by a 1.4% increase in business investment and a 1.1 percentage point growth enhancement from net exports.  Exports climbed 2.6%, whereas imports went up by a lesser 0.6%.  GDP climbed 0.4% in 2013 following 0.7% in 2012, but adjusted for working day variations last year saw GDP go up 0.5% versus a rise of 0.9% the year before.

Today sees the release of several meaningful U.S. indicators: the Conference Board’s consumer confidence index, the FHFA house price index, the Case-Shiller house price index, the Richmond Fed manufacturing index and weekly chain store sales.

Aside from a 0.4% increase against the yuan, the dollar has dipped 0.2% against sterling and the Swiss franc.  It is also down 0.1% versus the yen, euro and kiwi, unchanged relative to the Australian dollar, and 0.1% firmer vis-a-vis the Canadian dollar.

There was a 1.4% rise (214 point) advance of the Japanese Nikkei, contrasting with the weakness of Chinese share prices.  In other bourses in the Pacific Rim, equities fell 1.0% in Indonesia, 0.3% in Hong Kong, and 0.1% in Australia and Singapore but rose by 0.8% in South Korea, 0.3% in Malaysia, and 0.2% in India and Taiwan.  In Europe, equities have dropped 0.9% in Britain, 0.5% in Germany and France, 0.4% in Italy, and 0.1% in Switzerland.

Ten-year sovereign debt yields are unchanged in Germany, Britain, and Japan.

The price of West Texas Intermediate crude oil fell by 0.9% to $101.88 per barrel. Gold drifted 0.2% lower to $1,335.40 per ounce.

Japanese corporate service prices fell 0.6% on month in January thanks to a 5.5% seasonal drop in advertising.  On-year CSP inflation of 0.8% constituted a three-month low.  The Bank of Japan’s balance sheet grew by JPY 3.2 billion in the middle ten days of February in continuing response to quantitative easing.

Small business sentiment in Japan as sampled by Shoko Chukin Bank fell to a five-month low of 50.6 in February from a 51.3 reading in January.

The Conference Board’s index of Chinese coincident economic indicators only edged 0.2% higher in January after advances of 1.0% in November and 1.5% in December.  The index of leading Chinese economic indicators showed accelerated growth of 1.2% last month.

The Filipino trade deficit of $695 million in December was 48% smaller than in the final month of 2012 and 25% less than in November.  Hong Kong recorded a HKD 19.98 billion trade deficit in January, 63% smaller than in December.

Expected inflation over the coming two years in New Zealand held steady this quarter at 2.3%. 

South Africa’s index of leading economic indicators stagnated in December following a 0.3% drop in December.

The CBI survey of British retail and other distributive trade activity rebounded to a reading of 37 in February, a 20-month high, after slumping from 34 in December to a score of 14 in January.  The British Bankers Association reported greater-than-forecast mortgage approvals in January totaling 49,972, most since September 2007. 

Business sentiment in France remained steady with a reading of 100 in February, matching analyst forecasts.

Italian consumer confidence fell by a half point to 97.5 in February, defying forecasts of a slight increase.  Italian retail sales posted a sizable 2.6% decrease between December 2012 and December 2013.

Producer prices in Spain posted both a 1.3% monthly decline and a 1.8% year-over-year drop in January.  Icelandic consumer prices in January were just 1.5% above their year-earlier level.  Austrian industrial production dipped 0.1% on month in December and posted a drop of 0.6% from end-2012.

In addition to the aforementioned data releases, New York Federal Reserve President Dudley speaks publicly today.  Note, too, that Chairwoman Yellen’s Humphrey Hawkins testimony before the senate committee, which was postponed initially due to a snow storm, will be held this Thursday.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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