International Perspective will be taking off next week to celebrate Thanksgiving. IP will return on December 3, 2010. Happy holiday to all celebrants from all of us at Econoday!
Equities were mixed last week as investors — with little new economic data except in the U.S. — focused on China and Europe, but for different reasons. Analysts expected an interest rate increase from the People’s Bank of China after October consumer prices soared by 4.4 percent. However, instead of increasing rates, the PboC resorted to a second increase in reserve requirements in as many weeks but did not make the announcement until Asian markets closed on Friday. In Europe, sovereign risk has been an enduring worry in 2010. Last week’s focus was on Ireland which at first insisted it did not need aid from the European Union, the European Central Bank or the International Monetary Fund. However, pressures built during the week both from the markets and European officials and in the end, the government of Ireland capitulated. Details are being worked out in Dublin. Meanwhile, stocks and commodities have stumbled from their two-year highs over the past six days on fears that an overly aggressive response to rising Chinese inflation and sovereign debt contagion in the eurozone could thwart global growth. The best day in the week for equities was Thursday when investors took advantage of recent declines and bought stocks. They put concerns about China’s monetary policy and by inference growth and the eurozone’s debt issues to the side. Rather investors chose to celebrate the acceptance of a bailout package by Ireland which would alleviate the most pressing worries about the status of sovereign debt in Europe. In addition, some investors saw Wednesday’s soft U.S. inflation data as a rebuttal to those hoping to dissuade the Federal Reserve from delivering its promised $600 billion of quantitative easing.
OECD offers semi-annual forecasts The Organization for Economic Cooperation and Development cut its global growth forecast for 2011. It predicted a soft spot as stimulus spending fades but before private investment spurs a revival in 2012. The global economy is expected to grow 4.2 percent in 2011 and 4.6 percent in 2012. OECD is concerned that the sustainability of sovereign debt levels along with growing trade imbalances around the world pose risks to the recovery. Housing price declines in the U.S. and UK are also worrisome. The OECD notes there are significant risks on the downside.
| | 2009 | 2010 | % Change | | Index | Dec 31 | Nov 12 | Nov 19 | Week | Year | | Asia/Pacific | | | | | | | | Australia | All Ordinaries | 4882.7 | 4778.8 | 4717.7 | -1.3% | -3.4% | | Japan | Nikkei 225 | 10546.4 | 9724.8 | 10022.4 | 3.1% | -5.0% | | Topix | 907.6 | 847.0 | 869.5 | 2.7% | -4.2% | | Hong Kong | Hang Seng | 21872.5 | 24222.6 | 23605.7 | -2.5% | 7.9% | | S. Korea | Kospi | 1682.8 | 1913.1 | 1941.0 | 1.5% | 15.3% | | Singapore | STI | 2897.6 | 3252.0 | 3197.4 | -1.7% | 10.3% | | China | Shanghai Composite | 3277.1 | 2985.4 | 2888.6 | -3.2% | -11.9% | | | | | | | | | India | Sensex 30 | 17464.8 | 20156.9 | 19585.4 | -2.8% | 12.1% | | Indonesia | Jakarta Composite | 2534.4 | 3665.9 | 3725.1 | 1.6% | 47.0% | | Malaysia | KLCI | 1272.8 | 1499.8 | 1506.1 | 0.4% | 18.3% | | Philippines | PSEi | 3052.7 | 4076.7 | 4203.6 | 3.1% | 37.7% | | Taiwan | Taiex | 8188.1 | 8316.1 | 8306.1 | -0.1% | 1.4% | | Thailand | SET | 734.5 | 1018.9 | 1008.8 | -1.0% | 37.3% | | | | | | | | | Europe | | | | | | | | UK | FTSE 100 | 5412.9 | 5796.9 | 5732.8 | -1.1% | 5.9% | | France | CAC | 3936.3 | 3831.1 | 3860.2 | 0.8% | -1.9% | | Germany | XETRA DAX | 5957.4 | 6734.6 | 6843.6 | 1.6% | 14.9% | | | | | | | | | North America | | | | | | | | United States | Dow | 10428.1 | 11192.6 | 11203.6 | 0.1% | 7.4% | | NASDAQ | 2269.2 | 2518.2 | 2518.1 | 0.0% | 11.0% | | S&P 500 | 1115.1 | 1199.2 | 1199.7 | 0.0% | 7.6% | | Canada | S&P/TSX Comp. | 11746.1 | 12749.2 | 12956.3 | 1.6% | 10.3% | | Mexico | Bolsa | 32120.5 | 36057.4 | 36601.4 | 1.5% | 14.0% |
 Equities here were pressured by the ongoing Irish crisis but rallied Thursday after the country agreed to a bailout from the EU, ECB and IMF. However, the FTSE was down 1.1 percent for the week while the DAX and CAC advanced 1.6 percent and 0.8 percent respectively. China’s monetary policy move also weighed on the FTSE as commodity prices — and mineral and mining companies — declined on the prospect of slower Chinese growth. Stocks were volatile, sinking heavily on Tuesday but recouping the rest of the week. Stock performance improved as concerns about Ireland’s debt eased especially after Irish central bank Governor Patrick Honohan said the country is likely to get loans worth tens of billions of euros from the European Union and the IMF.
Economic data emanated primarily from the UK last week with new consumer price, unemployment and retail sales data being released. Consumer prices continue to exceed the Bank of England’s 2 percent inflation target. However, unemployment continues to ebb downward while retail sales continue to surprise on the upside. In Germany, the ZEW sentiment survey also surprised on the upside for both current conditions and expectations.
 Equities here were mixed last week as investors kept one eye on China and the other on Ireland. Anxieties about China’s move to contain inflation occurred after markets closed here. Equities in Japan were up thanks primarily to the weaker yen — the Nikkei advanced 3.1 percent while the Topix gained 2.7 percent. Investors here were also concerned about the ongoing crisis and negotiations regarding Ireland’s banking problem even though by week’s end many were assuming the problems there would be resolved.
Rather the emphasis here was on China’s policy measures to combat inflation. Investors in Hong Kong reacted in anticipation to a new measure by the government there to cool the property market. The announcement was made after markets closed. Both the Shanghai Composite and Hang Seng slumped, losing 3.2 percent and 2.6 percent respectively.
People’s Bank of China  The People’s Bank of China once again increased bank reserve requirements. This was the second time in as many weeks as the government continued its fight against a surprising jump in inflation by withdrawing more cash from the banking system. The move follows a Wednesday announcement by the State Council, the executive arm of China's government — of numerous measures — including price controls if necessary — aimed at containing food and commodity prices. The PBoC increased interest rates in October for the first time in three years by 25 basis points to 5.56 percent.
October’s consumer price index jumped 4.4 percent on the year and was much higher than the Bank’s 3 percent target. Stocks here have swooned since the data were released on November 11th. Investors worried that the inflation threat would force the government to slow growth to compensate. The PboC has signaled in recent weeks that it wants to return economic policies to more normal settings after keeping them loose and stimulative since the onset of the financial crisis in late 2008. The official reserve ratio for major banks will rise to 18 percent with Friday's announcement, though China's largest banks are subject to a higher ratio and the smaller banks to a lower one. The government's official target to keep new bank lending within ¥7.5 trillion or $1.13 trillion this year is in danger of being breached. Banks are pushing out more new loans than usual as the end of year approaches.
Hong Kong Hong Kong's government took steps to cool the city's real estate market by significantly raising transaction costs for speculators. Financial Secretary John Tsang said the moves, which include additional stamp duties for properties sold within two years of purchase as well as lower mortgage ratios, underscore the government's commitment to ensuring stability in Hong Kong's property market as apartment prices continue to soar amid ample liquidity and extremely low interest rates. Property prices are now near the peak they reached before the last property bubble in 1997. Over the last year, the government has introduced a number of cooling measures, such as increasing land supply and temporarily excluding the use of real estate purchases in an investment immigration program, but it has achieved mixed results. The new duties, which take effect Saturday, are in addition to existing stamp duties of as much as 4.25 percent of property sales prices. To further contain speculation and lending in the property sector, the Hong Kong Monetary Authority told banks to lower the ceiling on mortgages for residential properties. For example, properties valued at HK$12 million, the ceiling would be lowered to 50 percent of the property's value from 60 percent, with immediate effect. The Hong Kong dollar is pegged to its U.S. counterpart, which has kept interest rates at an artificially low rate given the economy’s strength.
Bank of Korea  The Bank of Korea lifted its seven day repurchase rate by 25 basis points to 2.5 percent on Tuesday. It was the second time in four months that the Bank has increased rates to ward off inflation which was up 4.1 percent in October. The Bank’s inflation target is 3 percent with a ‘tolerance range’ of plus or minus 1 percentage point. The increase in inflation was mainly driven by higher prices for farm produce. The Bank of Korea also removed the wording "under the accommodative policy stance" from its statement, suggesting that interest rates will continue to increase to more normal levels after two years of very low borrowing costs.
 The dollar was up against most of its major counterparts last week despite intraweek volatility. The dollar was sought as a haven against the euro. The euro was hard hit once again as a sovereign debt issue resurfaced and until pressures eased as the situation moved slowly toward resolution. Canadian and Australian currencies were down along with commodity prices for most of the week given their dependency on exports to China and the prospect of slower growth there. However, the two currencies managed to end the week virtually unchanged. The dollar was also supported by the mostly positive economic data from the U.S. including manufacturing output, jobless claims and retail sales. Weak housing starts were the exception.
The yen, no doubt to the delight of almost everyone in Japan, has been slowly edging downward against both the euro and the U.S. dollar. This in turn has revived the equity market and exporter stocks have spurred gains in both the Nikkei and Topix. The lower yen helps support exporters’ profits when they are repatriated and keeps them more competitive in pricing. In a speech to the Sixth European Central Bank Central Banking Conference in Frankfurt, Fed Chairman Ben Bernanke defended the Fed’s quantitative easing program. He said that China and others are causing global problems by preventing their currencies from strengthening as their economies boom. He asserted that by keeping their currencies artificially weak to stimulate exports, China and other emerging markets are allowing their economies to overheat, preventing trade imbalances from adjusting and exacerbating the uneven global recovery. The Federal Reserve has come under attack for its decision to purchase $600 billion in U.S. Treasury bonds in an effort to drive down long term interest rates. Critics in the U.S say it could cause inflation. Critics abroad say the flood of dollars that the Fed is effectively printing to finance its bond purchases is pouring into overseas markets and could cause asset bubbles. Some also have accused the Fed of trying to weaken the dollar to spur U.S. exports. Fed officials have denied that this is their goal, though Mr. Bernanke acknowledged the U.S. currency should weaken against currencies in emerging markets because their economies are growing so much faster than economies in the developed world.
Selected currencies — weekly results | | 2009 | 2010 | % Change | | | Dec 31 | Nov 12 | Nov 19 | Week | 2010 | | U.S. $ per currency | | | | | | | | Australia | A$ | 0.898 | 0.987 | 0.986 | 0.0% | 9.8% | | New Zealand | NZ$ | 0.727 | 0.774 | 0.780 | 0.7% | 7.3% | | Canada | C$ | 0.955 | 0.991 | 0.983 | -0.8% | 2.8% | | Eurozone | euro (€) | 1.433 | 1.369 | 1.369 | 0.0% | -4.5% | | UK | pound sterling (£) | 1.617 | 1.614 | 1.599 | -0.9% | -1.1% | | | | | | | | | Currency per U.S. $ | | | | | | | | China | yuan | 6.827 | 6.638 | 6.639 | 0.0% | 2.8% | | Hong Kong | HK$* | 7.753 | 7.751 | 7.754 | 0.0% | 0.0% | | India | rupee | 46.525 | 44.830 | 45.290 | -1.0% | 2.7% | | Japan | yen | 93.125 | 82.428 | 83.464 | -1.2% | 11.6% | | Malaysia | ringgit | 3.427 | 3.118 | 3.119 | 0.0% | 9.9% | | Singapore | Singapore $ | 1.405 | 1.297 | 1.296 | 0.1% | 8.5% | | South Korea | won | 1164.000 | 1127.838 | 1133.650 | -0.5% | 2.7% | | Taiwan | Taiwan $ | 31.985 | 30.209 | 30.321 | -0.4% | 5.5% | | Thailand | baht | 33.400 | 29.840 | 29.965 | -0.4% | 11.5% | | Switzerland | Swiss franc | 1.035 | 0.980 | 0.992 | -1.2% | 4.4% | | *Pegged to U.S. dollar | | | | | | | | Source: Bloomberg | | | | | | |
 September seasonally adjusted merchandise tradebalance recorded a surplus of €2.4 billion. The improvement reflected at 0.6 percent increase in exports and a 2.5 percent slide in imports. on the year, exports were up 22 percent while imports were 21 percent stronger.
 October harmonized index of consumer prices was up 0.4 percent and 1.9 percent on the year. Although the headline inflation rate has crept higher during the course of 2010, there has been little change in the underlying picture. Core HICP which excludes food, drink, tobacco and petroleum, was only 1.1 percent on the year and barely changed from the 0.9 percent pace posted at the start of the year. The same applies to the other core rates with the HICP excluding processed foods & energy running at a 1.1 percent pace and omitting seasonal foods & energy, 1.1 percent. Regionally among the larger states national headline inflation rates accelerated last month in Italy (2.0 percent from 1.6 percent) and Spain (2.3 percent from 2.1 percent). However, in both France (1.8 percent) and Germany (1.3 percent) there was no change.
 November ZEW's economic expectations indexrebounded nine points to a three-month high of plus 1.8 after declining for six consecutive months. However, it remains well below the long run average of 26.9. The current conditions component jumped 8.9 points to 81.5 in November. Two hundred and seventy-seven analysts and investors were polled between November 1stand 15th according to the ZEW.
 October consumer priceswere up 0.3 percent and 3.2 percent on the year. Core CPI was once again much better behaved than the headline figures with a 0.1 percent monthly increase and a 2.7 percent advance on the year. The Bank of England’s inflation target is 2 percent. However, the new BoE Inflation Report revised up slightly the official near-term view of inflation and the figures come as no real surprise.
 October claimant count unemployment declined 3,700 following a smaller revised 1,300 increase in September. The jobless rate remained at 4.5 percent. The relative buoyancy of the claimant count measure found support in the lagging ILO figures which revealed a 9,000 drop in joblessness in the third quarter for an unemployment rate of 7.7 percent. However, the unemployment decline is having a minimal impact upon wages. Average earnings accelerated in September but only to a lowly 2.0 percent annual rate. Excluding bonuses, wages were almost as soft, up 2.2 percent on the year.
 October retail sales volumes were up 0.5 percent on the month following a steeper revised 0.5 percent drop in September and left real sales down 0.1 percent on the year. Volumes were boosted on the month by a 2.5 percent jump in fuel sales excluding which purchases were up a less robust 0.3 percent from September or 1.2 percent on the year. The other main areas of strength were non-store retailing (up 1.2 percent on the month) and the other stores category (up 1.6 percent). There was also an increase in sales of clothing & footwear (up 0.6 percent). However, at the same time demand fell significantly at non-specialized stores (down 0.8 percent) and for household goods (down 0.6 percent). Purchases of food were up 0.1 percent on the month and 2.0 percent lower than a year ago and (excluding fuel) non-food sales were up 0.3 percent and 2.5 percent on the year.
 Third quarter gross domestic product was up a more than anticipated 0.9 percent on the quarter and 4.1 percent when compared with the same quarter a year ago. Analysts had anticipated quarterly growth of 0.6 percent. The quarterly pace compares with growth of just 0.4 percent in the second quarter. GDP grew at an annualized pace of 3.9 percent compared with 1.8 percent in the second quarter. Private sector demand was up 1.3 percent after growing a mere 0.3 percent in the previous quarter. Private consumption improved to 1.1 percent growth from 0.1 percent. Consumer spending makes up about 60 percent of GDP. Households stepped up purchases of fuel-efficient vehicles ahead of the program’s expiry in September and smokers stocked up on tobacco before taxes were increased on October 1. However, CAPEX was up just 0.8 percent after increasing 1.8 percent in the second quarter while private consumption was up 1.2 percent after an anemic 0.1 percent growth in the second quarter. Public demand slipped 0.1 percent after declining 0.3 percent previously.
 September tertiary industryactivity declined a somewhat more than expected 0.9 percent but was up 1.2 percent on the year. This was the first drop in four months. The index has increased for the eighth time on the year. The decline was attributed mostly to slower auto sales. The following groups declined — wholesale & retail trade, information & communications, living-related & personal services & amusement services, scientific research, professional & technical services, transport & postal activities, electricity, gas, heat supply & water, medical, health care & welfare, real estate & goods rental & leasing, accommodations, eating & drinking services and learning support. Industries that increased on the month included miscellaneous services, finance & insurance and compound services.
 September manufacturing sales declined 0.6 percent after jumping 2 percent in August. on the year, sales were up 9.1 percent. The swoon was concentrated mostly in the transportation equipment industry where sales sank 1.4 percent. Since hitting their most recent low in May of 2009, sales have advanced in 11 of the past 16 months and are 17.7 percent higher. In September, sales were down in 13 of 21 industries which represent two-thirds of total sales. Transportation equipment sales plunged a monthly 7.5 percent in September. Within this sector, the motor vehicle industry sales plummeted 10.4 percent reflecting lower production at several assembly plants. Sales in the motor vehicle parts industry dropped 6.1 percent while production in the aerospace product and parts industry fell 5.7 percent. Fabricated metal product sales and paper sales also declined. Partially offsetting these declines were gains in the petroleum & coal products industry (up 6.2 percent) and the primary metal industry (up 3.3 percent), both the result of price and volume increases.
Investors nervously awaited resolution of the eurozone debt crisis while the looming policy move by China added to their angst. Economic data from the UK and Germany were positive along with many of those released in the U.S. The week is shortened by the Thanksgiving holiday in the U.S. so new data releases are crammed into Monday through Wednesday. Among the new data are updated estimates of third quarter growth along with new personal income and spending data. In Europe, a more detailed estimate of Germany’s growth is on Tuesday’s agenda. And in Japan, the all important trade balance and consumer prices will be released. But investors will watch the unfolding of Ireland’s bailout and monitor China’s policies very closely.
| The following indicators will be released this week... | | Europe | | | | November 23 | Germany | Gross Domestic Product (Q3.2010, final) | | November 24 | Germany | Ifo Business Survey (November) | | UK | Gross Domestic Product (Q3.2010, second estimate) | | November 26 | EMU | M3 Money Supply (October) | | France | Consumption of Manufactured Goods (October) | | | | | Asia/Pacific | | | | November 25 | Japan | Merchandise Trade Balance (October) | | November 26 | Japan | Consumer Price Index (October) | | | | | Americas | | | | November 22 | Canada | Consumer Price Index (October) | | | Retail Sales (September) |
| Central Bank activities | | | December 2 | EMU | European Central Bank Announcement | | | | | The following indicators will be released this week... | | Europe | | | | November 29 | EMU | Business and Consumer Sentiment (November) | | Germany | Retail Sales (October) | | November 30 | EMU | Unemployment (October) | | | Harmonized Index of Consumer Prices (November, flash) | | Germany | Unemployment (November) | | France | Producer Price Index (October) | | December 1 | EMU | Manufacturing PMI (November) | | December 2 | EMU | Gross Domestic Product (Q3.10 preliminary) | | | Producer Price Index (October) | | France | ILO Unemployment (Q3.10) | | December 3 | EMU | Retail Sales (October) | | | | | Asia/Pacific | | | | November 29 | Japan | Retail Sales (October) | | November 30 | Japan | All Household Spending (October) | | | Unemployment (October) | | | Industrial Production (October) | | December 1 | Australia | Gross Domestic Product (Q3.10) | | December 2 | Australia | International Trade Balance (October) | | | | | Americas | | | | November 29 | Canada | Industrial Product Price Index (October) | | November 30 | Canada | Gross Domestic Product (Q3.10) | | | Monthly Gross Domestic Product (September) | | December 3 | Canada | Labour Force (November) |
Anne D Picker is the author of International Economic Indicators and Central Banks.
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