Euro Falters on Irish Budget Concerns
November 8, 2010
The dollar rose 0.9% against the euro, 0.6% versus the Swiss franc, 1.1% against the New Zealand kiwi, and 0.4% against the Canadian dollar and sterling. The dollar is also 0.5% and 0.3% lower against the Australian dollar and Japanese yen but unchanged relative to the Chinese yuan.
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Press reports over the weekend observed many doubts especially in other countries about the wisdom of the Fed’s QE2, which is being viewed as a stealth form of competitive devaluation. Nonetheless, the dollar has opened the week mostly higher.
In the Pacific Basin, Japan’s Nikkei rose by 1.1%, and stocks also climbed in Singapore by 1.9%, Indonesia by 1.2%, Thailand by 0.9%, Pakistan by 1.0%, China by 0.8% and Malaysia by 0.5%. Stocks also fell 1.2% in the Philippines, 0.7% in India, 0.5% in Australia and 0.2% in Taiwan. Equities are down 0.3% in Britain and 0.2% in Germany and France.
Ten-year sovereign debt yields firmed three basis points in Britain and two basis points in Japan, but such slid a basis point in Germany.
Oil and gold prices fell by 0.4% to $86.48 per barrel and 0.5% to $1390.90 per troy ounce.
Ireland’s political opposition withdrew support for the proposed budget, sending the Irish 10-year bond premium back near a record width versus bunds of over 530 basis points.
Prime Minister Papandreou’s ruling socialist part appears poised to win most of the regional elections in Greece, persuading him to withdraw his threat to call snap national elections. He had cast the election as a vote of confidence in the government’s proposed fiscal cutbacks.
Under wide criticism of his suggestion for numerical current account targets, U.S. Treasury Secretary Geithner took back that idea, calling it infeasible at the upcoming G20 summit that starts in Seoul this weekend.
The United States went back to standard time over the weekend.
Germany released mixed data:
- Industrial production fell 0.8% in September, trimming the 12-month increase to 7.9% from 10.7% in the year to August. Analysts had forecast a moderate increase. Output advanced 1.5% last quarter but was unchanged in September from the average third-quarter level.
- The current account surplus nearly tripled to EUR 14.0 billion in September from EUR 5.0 billion in August and also was considerably greater than the surplus of EUR 10.7 billion a year earlier. The unadjusted trade surplus of EUR 16.8 billion was more than 25% wider than expected. The seasonally adjusted trade surplus of EUR 15.6 billion resulted from on-month export growth of 3.0% and a 1.5% contraction of imports, and it was the largest surplus in at least a year. Unadjusted exports and imports were 22.5% and 18.0% greater than in September 2009.
Sweden’s Riksbank released minutes of its late October policy meeting in which the repo rate was raised by 25 basis points to 1.0% in a move to ensure that the 2% medium-term inflation target is met and as a means of normalizing policy. Two of the six policymakers dissented from the action and express concern that it might boost the krona unduly. They also preferred a flatter upward rate path to 2.7% at the end of the forecast period instead of the majority’s preference for 3.4%. Even the majority’s rate path was lower than indicated earlier because of greater global economic uncertainties.
The Sentix index of investor sentiment toward the euro area improved to a three-year high of 14.0 in November from 8.8 in October. Both expectations and current conditions improved. The rise of the overall index was greater than forecast.
Swiss unemployment remained steady at a low 3.5% in October.
Czech industrial production posted a smaller-than-expected 1.2% on-year rise in September, and the economy’s 8.5% jobless rate last month also was worse than forecast. Turkish industrial output fell 0.4% on month in September and recorded a slightly smaller-than-expected 12-month increase of 10.4%.
Japan’s index of leading economic indicators fell 0.6 points to a seven-month low of 98.9 in September and had a low diffusion score of just 30.0. The coincident index (102.0) constituted a four-month low. The Bank of Japan released a new monthly economic assessment, containing a downgrade to “the recovery seems to be pausing” and “is likely to grow at a slower pace for some time but is expected to return to a moderate recovery path thereafter.”
Taiwan’s trade surplus widened to $3.0 billion in October, as on-year export growth of 21.9% and import expansion of 27.9% both surpassed expectations.
The kiwi was depressed by New Zealand house price data showing an on-year rise of just 1.1%, lowest in 11 months.
Australian job ads posted a sixth consecutive monthly advance, rising 0.6% in October.
Canada releases housing starts figures today. There are no U.S. releases scheduled, but the parade of Fed public speeches continues with awaited comments from Warsh, Bullard and Fisher.
Copyright Larry Greenberg 2010. All rights reserved. No secondary distribution without express permission.
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