International Perspective will be taking off next week.
IP will return on Thursday, December 31, 2009.
Happy New Year from all of us at Econoday!
With two holiday shortened weeks looming, many investors that had not already done so wrapped up trading for the year. As a result, volumes thinned making for spiky moves in the major equity indexes. Nerves about 2010 prospects were exacerbated by debt woes in many EMU states. And economic data were ‘mixed’ and in many cases did not give a clear direction — something not uncommon in this phase of the business cycle.
The week was divided by pre-FOMC announcement and post-FOMC trading as investors warily eyed the Fed’s post-meeting statement. And while the inverse relationship between the U.S. dollar and equities appears to be weakening, the dollar’s revival dampened demand for stocks. News that Standard & Poor’s had cut Greece’s credit rating further dampened spirits and reminded investors that sovereign debt risks still remain.
The Federal Reserve’s statement contained few surprises, but some investors later focused on the FOMC’s confirmation that many of the money market support mechanisms would be removed at the start of February. This, coupled with the Fed upgrading its assessment of the economy, convinced some traders that the timetable for monetary tightening has moved forward slightly. This reasoning lent further support to the dollar’s rally.
On the week 12 of 21 indexes followed here declined. Losses ranged from 4.1 percent for the Shanghai Composite and 3.2 percent for the Hang Seng to 0.2 percent for the Bolsa. Gains were modest and ranged from 1.7 percent for the SET to 0.1 percent for the STI.
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|
2008 |
2009 |
% Change |
|
Index |
Dec 31 |
Dec 11 |
Dec 18 |
Week |
Year |
Asia |
|
|
|
|
|
|
Australia |
All Ordinaries |
3659.3 |
4651.4 |
4671.9 |
0.4% |
27.7% |
Japan |
Nikkei 225 |
8859.6 |
10107.9 |
10142.1 |
0.3% |
14.5% |
|
Topix |
859.2 |
888.6 |
893.6 |
0.6% |
4.0% |
Hong Kong |
Hang Seng |
14387.5 |
21902.1 |
21175.9 |
-3.3% |
47.2% |
S. Korea |
Kospi |
1124.5 |
1656.9 |
1647.0 |
-0.6% |
46.5% |
Singapore |
STI |
1761.6 |
2800.8 |
2802.6 |
0.1% |
59.1% |
China |
Shanghai Composite |
1820.8 |
3247.3 |
3113.9 |
-4.1% |
71.0% |
|
|
|
|
|
|
|
India |
Sensex 30 |
9647.3 |
17119.0 |
16719.8 |
-2.3% |
73.3% |
Indonesia |
Jakarta Composite |
1355.4 |
2519.1 |
2509.6 |
-0.4% |
85.2% |
Malaysia |
KLCI |
876.8 |
1260.0 |
1267.0 |
0.6% |
44.5% |
Philippines |
PSEi |
1872.9 |
3031.1 |
3017.0 |
-0.5% |
61.1% |
Taiwan |
Taiex |
4591.2 |
7795.1 |
7753.6 |
-0.5% |
68.9% |
Thailand |
SET |
450.0 |
703.6 |
715.7 |
1.7% |
59.1% |
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
UK |
FTSE 100 |
4434.2 |
5261.57 |
5196.81 |
-1.2% |
17.2% |
France |
CAC |
3218.0 |
3803.72 |
3794.44 |
-0.2% |
17.9% |
Germany |
XETRA DAX |
4810.2 |
5756.29 |
5831.21 |
1.3% |
21.2% |
|
|
|
|
|
|
|
North America |
|
|
|
|
|
|
United States |
Dow |
8776.4 |
10471.50 |
10328.89 |
-1.4% |
17.7% |
|
NASDAQ |
1577.0 |
2190.31 |
2211.69 |
1.0% |
40.2% |
|
S&P 500 |
903.3 |
1106.41 |
1102.47 |
-0.4% |
22.1% |
Canada |
S&P/TSX Comp. |
8987.7 |
11423.93 |
11463.40 |
0.3% |
27.5% |
Mexico |
Bolsa |
22380.3 |
31901.69 |
31834.07 |
-0.2% |
42.2% |
Only the DAX managed to gain last week but all succumbed to weaker than expected economic data combined with concerns over the implementation of stricter capital rules that were proposed by the Basel Committee on Banking Supervision pushed the three indexes lower as the week progressed. The U.S. dollar’s gains on Thursday and Friday also helped trip up investors here.
The committee’s proposals for stricter capital adequacy rules will force big banks to set aside more profits or to raise capital as protection against tough times beginning in 2012. The committee said banks’ tier one capital would in future have to be made up mainly of common shares and retained earnings. As would be expected, banks reacted negatively to the proposed changes saying that they appeared “punitive” and “very negative” for the sector. It was pointed out that some lenders could be especially hurt by the rules because the institutions relied heavily on tier one assets that would not be covered under the regime.
Another negative for equities occurred as Standard & Poor’s downgraded the Greece’s credit rating from A minus to triple B plus late on Wednesday just a week after peer Fitch cut the country’s credit rating to triple B plus with a negative outlook. The credit downgrade put the country’s financial markets under fresh pressure.
There was a slew of new economic data in Europe and the UK last week with the FTSE being hard hit Thursday by much weaker than anticipated retail sales. However, on a positive note, unemployment appears to be leveling off. One of the reasons that the DAX was able to gain was the positive Ifo survey readings that showed an improvement in economic sentiment.
Equity indexes in this region were split last week between winners and losers. Chinese stocks — both the Hang Seng (down 3.3 percent) and the Shanghai Composite (down 4.1 percent) led the declines for the week. Once again concerns about sustaining the global economic recovery resurfaced thanks to mixed economic data. Banking stocks were dragged lower after the Basel Committee on Banking Supervision released its draft proposal of tougher capital rules to meet the capital adequacy norms due to be implemented by 2012.
The week began on a positive note — equities were lifted by the news that the Abu Dhabi Government would extend assistance to the Dubai Financial Support Fund to meet the financial crisis faced by Dubai World. Profit taking and weak sentiment in early trading was offset by the Dubai news but many traders preferred to adopt a cautious approach ahead of the FOMC meeting and other U.S. economic data.
The FOMC announcement Wednesday afternoon (in the U.S.) also exerted downward pressure. The markets ended in negative territory on Thursday in reaction to the announcement which hinted that it might consider exiting from the stimulus measures once the economy shows signs of recovery. Traders preferred to lock in gains after the dollar rose to a 3-month high against the euro as well as other major currencies.
The Hang Seng was down four of five trading days for the second consecutive week. After losing 2.6 percent in the previous week, the index dropped 3.3 percent last week. The index was dragged down by major banks — they are worried that they may have to raise fresh capital or set aside a large amount of their profits to meet the new stringent capital adequacy norms. China-related stocks and resource stocks also ended in negative territory. Investors sold after mainland China instructed banks to restrict lending and also reduce the prospect of more bad loans. Property stocks also ended in negative territory on concerns about tough measures by Chinese government to control property prices.
Bank of Japan
As expected, the Bank of Japan kept its key uncollateralized overnight call rate at 0.1 percent. In its statement, the monetary policy board said that it will “not tolerate” falling prices but at the same time did not offer any new policies to tackle entrenched deflation. At his post-meeting press conference BoJ’s governor, Masaaki Shirakawa, signaled that the Bank was trying to clarify its goals and its statement did not imply a change of policy. Despite saying it will not tolerate falling prices, the MPB expects deflation to persist both next year and the year after, leading some analysts to conclude that its statement is partly a response to increasing political pressure for action.
The BoJ’s previous “understanding” of medium to long-term price stability is that the change in the consumer price index (on the year) should be “in the range approximately between 0 and 2 percent, with most MPB members’ median at around 1 percent.” That definition does not rule out inflation sometimes turning negative. The new understanding is that inflation should fall “in a positive range of 2 percent or lower, and the midpoints of most policy board members’ understanding are around 1 percent.” The statement also said that the policy board does not tolerate a year-on-year rate of change in the CPI equal to or below 0 percent.
At his post-meeting press conference Shirakawa also said that if a central bank is focused on current price moves alone in setting its monetary policy, it would miss the bigger picture of the economy. Shirakawa stressed that the BOJ board's longer-term desired annual inflation of zero to 2 percent "differs from a policy commitment aiming at time frame effects." Further he said that price moves for the immediate future would not play a main role in determining monetary policy. The BoJ’s goal is to achieve price stability on the basis of medium to long-term price moves.
The BoJ does not have much policy maneuvering room. It has already lowered the key interest rate to virtually zero and has instituted a series of unconventional policy measures, such as buying private-sector debt owned by banks and extending them low-interest loans.
The dollar gained against most counterparts last week especially after the FOMC announcement. A combination of factors helped boost the currency after hitting a 16-month low late in November. Since then, a shift in interest rate expectations and increased risk aversion has helped the dollar rise to its highest levels since September against the euro. Conventional wisdom for the last few months had been that the interest rate gap between the EMU and U.S. would widen, with the European Central Bank increasing its key interest rate from one percent in the coming months. However, with the eurozone economy lagging and a number a member states suffering debt problems, analysts are reassessing their outlook.
For now, sentiment for the euro is very fragile. The euro weakened against the dollar as the ECB said the region’s banks may have to write down an additional €187 billion as loans to property companies and eastern European nations threaten the financial recovery. And some analysts think that there is a high risk of even more bad budget news from Portugal, Spain, Iceland and the Baltics in addition to Greece’s woes. This in turn could undermine the euro for months to come.
The yen was down against both the dollar and euro after the Bank of Japan said it would not tolerate consumer price declines, spurring speculation the Bank will maintain a target lending rate of almost zero well into the future.
The dollar’s surge last week occurred as investors squared positions ahead of the year end.Some analysts put the dollar’s performance down to the modest upgrade to the Federal Reserve’s assessment for the economy after its policy meeting on Wednesday. The FOMC maintained its dovish stance on interest rates, pledging to keep them at ultra-low levels for an extended period. But it delivered a more hawkish assessment of the economy as it said that “the deterioration in the labour market is abating”. Some analysts said this would help reinforce expectations that a continued improvement in that area could change Fed thinking quite rapidly and herald a faster exit from the central bank’s zero interest rate policy.
Selected currencies — weekly results
|
|
2008 |
2009 |
% change |
|
|
Dec 31 |
Dec 11 |
Dec 18 |
Week |
2009 |
U.S. $ per currency |
|
|
|
|
|
|
Australia |
A$ |
0.711 |
0.912 |
0.891 |
-2.4% |
25.2% |
New Zealand |
NZ$ |
0.587 |
0.725 |
0.711 |
-2.0% |
21.0% |
Canada |
C$ |
0.822 |
0.944 |
0.928 |
-1.7% |
12.9% |
Eurozone |
euro (€) |
1.397 |
1.463 |
1.434 |
-2.0% |
2.6% |
UK |
pound sterling (£) |
1.459 |
1.624 |
1.614 |
-0.6% |
10.6% |
|
|
|
|
|
|
|
Currency per U.S. $ |
|
|
|
|
|
|
China |
yuan |
6.826 |
6.828 |
6.828 |
0.0% |
0.0% |
Hong Kong |
HK$* |
7.750 |
7.750 |
7.757 |
-0.1% |
-0.1% |
India |
rupee |
48.675 |
46.545 |
46.725 |
-0.4% |
4.2% |
Japan |
yen |
90.740 |
89.085 |
90.342 |
-1.4% |
0.4% |
Malaysia |
ringgit |
3.453 |
3.399 |
3.438 |
-1.1% |
0.4% |
Singapore |
Singapore $ |
1.433 |
1.392 |
1.403 |
-0.8% |
2.1% |
South Korea |
won |
1259.550 |
1164.050 |
1176.000 |
-1.0% |
7.1% |
Taiwan |
Taiwan $ |
32.820 |
32.160 |
32.371 |
-0.7% |
1.4% |
Thailand |
baht |
34.753 |
33.135 |
33.230 |
-0.3% |
4.6% |
Switzerland |
Swiss franc |
1.066 |
1.034 |
1.043 |
-0.9% |
2.2% |
*Pegged to U.S. dollar |
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Source: Bloomberg |
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October industrial production (excluding construction) dropped 0.6 percent and was down 11.1 percent when compared with last year. Weakness was most apparent in the consumer sector where output dropped 1.6 percent on the month in nondurables and 1.4 percent in durables. Elsewhere, production slipped 0.3 percent in energy but was unchanged in capital goods and was up 1.2 percent in intermediates. Regionally industrial output was lower on the month in Belgium (1.8 percent), Germany (0.8 percent), France (0.9 percent), Ireland (2.8 percent), Portugal (1.4 percent) and Slovenia (3.2 percent) while Italy (0.5 percent), Spain (0.3 percent), the Netherlands (0.6 percent) and Finland (2.2 percent) all saw production expand.
November harmonized index of consumer prices edged up 0.1 percent on the month and was up 0.5 percent when compared with a year ago. The ECB's preferred core measure which excludes food, drink, tobacco & gasoline slowed to a 1.0 percent annual rate from 1.2 percent in October. Excluding just seasonal food the 12-month rate slipped 0.1 percentage point to just 0.9 percent while by simply omitting unprocessed foods the rate was 1.0 percent. By contrast, heating oil prices rose nearly 3 percent on the month. Regionally, oil price base effects effectively ensure that annual inflation rates accelerated in most EMU countries. The only exception was Ireland where the 12-month rate held steady at minus 2.8 percent.
October unadjusted merchandise trade surplus was €6.3 billion surplus following a smaller revised €4.3 billion surplus in September. The unadjusted surplus was €8.8 billion, boosting the cumulative year-to-date surplus to €17.4 billion. However total exports fell 0.2 percent on the month while imports were down a much steeper 2.2 percent. On the year, exports declined 17.0 percent and imports dropped 24.0 percent.
December ZEW survey’s current conditions improved to minus 60.6 from 60.1 in November and its highest reading since November last year Expectations eased to 50.4 for its third decline in a row. The gain in the current conditions index is consistent with the ongoing recovery in the economy as a whole but as the (minor) slippage on the expectations measure makes clear, there are still serious question marks over the strength and durability of the upswing. Indeed, ZEW are notably cautious about economic prospects next year and attributes much of what optimism there is in its latest survey to a rebound in exports.
December Ifo economic sentiment edged up 0.8 points to 94.7, its ninth consecutive monthly advance, as the current conditions sub-index climbed 1.4 points to 90.5 and expectations crept 0.2 points higher to 99.1. All of the main sectors saw some improvement. The best performer was services where sentiment was up 3.6 points to 5.5 but manufacturing also advanced a respectable 2.3 points to minus 8.8 and wholesale was up 1.5 points to minus 6.6. Confidence in the retail sector gained only one point however and, alongside construction (up just 0.6 points to minus 26.7) remains disappointingly soft.
November producer prices excluding construction were up 0.5 percent but remain 5.9 percent below the same month a year ago. November was only the second month this year in which the PPI has been positive on the month but this was only due to higher energy prices. Excluding energy, the PPI would have been unchanged from October and 2.3 percent weaker on the year. Amongst the other main sectors, prices edged up 0.1 percent on the month in consumer durables and 0.2 percent in nondurables. However, capital goods prices were steady and basics drooped by 0.2 percent.
Third quarter unemployment rate jumped to 7.8 percent from 7.5 percent in the second quarter.
Following a slightly higher revised 7.5% rate in the previous period, the jobless rate rose by 0.3 percentage points to 7.8 percent in the quarter just ended. The data were on the soft side of expectations. The largest quarterly gain was in the north where the jobless rate jumped 0.4 percentage points to 5.5 percent, although unemployment in this region remains low compared with the central area (up 0.1 percentage points to 6.9 percent) and the south (up 0.1 percentage points to 12.4 percent). The latest rise in joblessness extends the upward trend that began in the third quarter of 2007 — since then the rate has climbed 2.8 percentage points.
November consumer prices were up 0.3 percent and up 1.9 percent on the year. The other two main inflation indexes also posted a 0.3 percent monthly increase which boosted the annual RPI rate to 0.3 percent and the formerly targeted RPIX to 2.7 percent. Inevitably most of the acceleration could be attributed to higher energy costs. In particular, fuels & lubricants were up 2.8 percent on the month. Largely as a result, annual inflation in transportation nearly doubled to 6.9 percent although a shortage of second-hand cars was also a factor here. Annual inflation rates also moved higher in clothing & footwear (0.5 percentage points to minus 6.3 percent), alcohol & tobacco (0.2 percentage points to 4.5 percent), furniture & equipment (0.2 percentage points to 3.5 percent) and in housing, utilities & fuels (0.1 percentage points to minus 1.2 percent). However, inflation fell in a number of areas too, notably in food & non-alcoholic drinks (0.9 percentage points to 1.3 percent) and health (0.8 percentage points to 2.6 percent). As a result, the core CPI was up a slightly smaller 0.2 percent from October, only sufficient to nudge the annual underlying rate just a tick higher to 1.9 percent.
November claimant count unemployment dropped by 6,300 — the first decline of any size in nearly two years, following a weaker revised 5,900 increase in October. The claimant unemployment rate was 5.0 percent. Claimant count unemployment now stands at 1,626,200, a figure well below most projections made just a few months ago. ILO unemployment rose 21,000 in the three months to October. The latest increase was the smallest since March through May 2008 and left the unemployment rate as expected at 7.9 percent after an upward revision to the previous month.
Average earnings for the three months ending in November was up 1.5 percent when compared with the same three months a year ago. Excluding bonuses, headline earnings held steady at a 1.7 percent annual rate. Both private and public sectors saw wage rates accelerate by just 0.1 percentage points at the start of the quarter, the former to 1.1 percent and the latter to 2.8 percent. Most of the pick-up reflected stronger growth in manufacturing where earnings jumped 0.6 percentage points to 2.1 percent. Services were little changed at 1.2 percent after a 1.1 percent rise in September.
November retail sales slumped 0.3 percent and were up 3.1 percent when compared with last year. Food purchases were up 0.4 percent but non-food sales dropped 0.9 percent. Within the non-food sector, sales declined sharply at non-specialized stores (a record 4.4 percent) and, despite hefty discounting, purchases of clothing & footwear were down 1.8 percent. However, volumes were up for household goods (0.6 percent) and in the other stores category (0.9 percent) as well as in non-store retailing (0.8 percent).
Fourth quarter Tankan for large manufacturers improved to a reading of minus 24 from minus 33 in the third quarter while the small manufacturers reading improved to minus 40 from minus 52. Since the third quarter survey, the yen has surged to a 14-year high and the impact of massive fiscal stimulus has faded. This was the third consecutive improvement in business confidence as credit conditions appear to be normalizing and demand is gaining traction. All enterprises expect to cut capital spending in fiscal year 2009 by 18.8 percent with large manufacturers cutting back by 28.2 percent while nonmanufacturers cut back by 5.5 percent. A diffusion index measures the percentage of firms saying business conditions are good against those saying conditions are bad, with a negative reading indicating more pessimists than optimists.
October tertiary industry activity index was up 0.5 percent and down 4.3 percent on the year. The following industries were up on the month — information & communications (up 5.6 percent), wholesale & retail trade (up 0.6 percent), electricity, gas, heat supply & water (up 3.2 percent), accommodations, eating & drinking services (up 1.3 percent) and learning support (up 2.5 percent). Industries that declined on the month included scientific research, professional & technical services (down 6.4 percent), living-related & personal services & amusement services (down 2.9 percent) as well as miscellaneous services (except government services etc), real estate & goods rental and leasing and finance and insurance.
Third quarter gross domestic product was up a less than expected 0.2 percent after increasing by 0.6 percent. On the year, GDP was up 0.5 percent. On the quarter growth on the expenditure side was driven by household final consumption expenditure (0.4 percentage points), dwellings (0.3 percentage points) and public gross fixed capital formation (0.3 percentage points). Offsetting the growth were exports of goods and services (minus 0.5 percentage points) and an increase in the imports of goods and services (detracting 1.1 percentage points). Private gross fixed capital formation declined by 0.7 percent driven by a drop in machinery & equipment prices and offset by an increase in alterations & additions prices. Final consumption expenditures were up 0.7 percent on the quarter and 1.9 percent on the year. Gross fixed capital formation was up 0.4 percent but dropped 4.0 percent on the year. The GDP chain price index was up 0.4 percent but down 3.1 percent on the year.
October manufacturing sales were up 2.0 percent but are still 16.6 percent below a year ago. Volume sales were up 1.2 percent from September. Sales were buoyed by aerospace and petroleum & coal products. The former surged 54.1 percent on the month following steep declines in August and September and so maintained what has been an especially volatile profile in recent months. At the same time, petroleum & coal products were up 7.2 percent with higher prices a major contributory factor. Motor vehicle sales were up 2.9 percent on the month for their third positive reading since June. However, fabricated metals sales plunged 4.4 percent. New orders dropped 1.8 percent on the month following a 7.9 percent leap last time, and backlogs fell 3.4 percent, their fourth consecutive monthly decline.
November consumer price index was up 0.5 percent and 1.0 percent on the year. Oil prices had the dominant impact — gasoline prices were up 14.1 percent on the year while in October the 12-month change was down 13.1 percent. The Bank of Canada’s preferred gauge of core inflation which excludes eight volatile items was up 0.4 percent and 1.5 percent on the year. At the same time the CPI less just food and energy was up 0.2 percent and 0.8 percent on the year. Seasonally adjusted CPI was up 0.6 percent on the month. Within this transportation posted the largest gain, up 1.8 percent. Other sizeable increases were seen in household operations & furnishings (0.6 percent) and clothing & footwear (0.5 percent). The only sector to edge down was alcohol & tobacco (0.1 percent).
Equities were mixed on this last full week of trading in 2009 as investors looked forward to 2010 with trepidation. Both the Bank of Japan and the Federal Reserve left their monetary policies essentially unchanged. Economic data were mixed.
Investors undoubtedly will be looking forward to a respite over the next two weeks with only Japan issuing its usual spate of updated economic data this coming week.
All of us at Econoday wish you a happy holiday season.
The following indicators will be released this week... |
Europe |
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December 23 |
France |
Consumption of Manufactured Goods (November) |
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Asia/Pacific |
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December 21 |
Japan |
Merchandise Trade Balance (November) |
December 25 |
Japan |
Consumer Price Index (November, December) |
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Unemployment Rate (November) |
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Household Spending (November) |
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Retail Sales (November) |
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Americas |
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December 21 |
Canada |
Retail Sales (October) |
December 23 |
Canada |
Monthly Gross Domestic Product (October) |
The following indicators will be released this week... |
Europe |
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December 29 |
France |
Gross Domestic Product (Q3.2009 final) |
December 30 |
EMU |
M3 Money Supply (November) |
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Italy |
Producer Price Index (November) |
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Asia/Pacific |
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December 28 |
Japan |
Industrial Production (November) |
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Retail Sales (November) |
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Anne D Picker is the author of International Economic Indicators and Central Banks.
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