"Follow the money" was Deep Throat's (aka W Mark Felt) suggestion for solving the cover up of the Watergate burglary. Wise Money's blog follows this adage by keeping you informed of events in the financial world. If you heed this advice you will have a much better chance of keeping and growing your pot of money than just relying on luck and ignorance. Over 525 daily postings since 2004.
The rise in October’s consumer price index, or CPI, for China- the world's biggest growing economy- compared with an increase of 5.2 percent in the 12 months through September, and was well below the 4.9 percent median forecast of five economists surveyed last week.
Annual consumer price inflation eased slightly in September, after gathering steam for five months in a row and hitting a seven-year high of 5.3 percent in July and August largely due to surging grain and vegetable prices.
“I think pressure for an immediate second rate hike is reduced, not just because of the CPI figure but because money supply growth was also less than expected,” said Deutsche Bank economist Jun Ma.
The high inflation was one factor behind the central bank’s decision last month to raise interest rates by 0.27 percentage point to 5.58 percent for one-year loans and 2.25 percent for one-year deposits.
That increase was China’s first in nine years, and marked its boldest step yet to cool heated economic growth. October’s CPI was flat from a month earlier, the National Bureau of Statistics said in a statement. China’s monthly data is not seasonally adjusted, making it difficult to assess underlying trends.
The CPI data came a day after China said the broad money supply at the end of October was up a slower-than-expected 13.5 percent from a year earlier, a sign that credit curbs in place since last year are still having an effect.
But the government also said that producer prices, the cost of goods at the factory gate, rose 8.4 percent in the year through October, the fastest pace since the 1997/98 Asian financial crisis.
Although goods like food and petrol have risen sharply in recent months, the prices of most manufactured items have fallen because of widespread overcapacity and fierce competition.
The US Federal bank tightened the funds rate by another quarter percentage point in one of the most anticipated moves in the recent times and continued with its phrase of raising the interest rates at a “measured” pace. The greenback salvaged some pride and recovered to the 1.2880 levels from its all time lows of 1.3006 vis-à-vis the euro in the New York trade. A 4% decline in the September US trade deficit to $51.6 billion from the market expected figure of $53.5 billion, courtesy strong exports and falling imports, also assisted the dollar’s comeback. Better economic fundamentals and a barrage of comments from ECB officials and European politicians regarding euro’s relentless rise, would support the dollar. A 1.5 yen surge by the dollar subsequent to US trade deficit figures raises eyebrows regarding yen selling intervention by Japanese officials as it fell towards a 2-week low of 107.30. US bilateral deficit with Japan declined 5% to $6.1 billion. Markets would be keenly looking forward to Japanese machinery orders data in September for better clues on the Japanese economic outlook. Sterling fell to as low as the early 1.84 levels amidst a general dollar resurgence. Bank of England’s quarterly inflation report indicated risks to have eased in the prior 3 months, almost eliminating chances of future rate hikes and further hurting the cable.
That is the question weighing over the mind of the traders and the markets across the globe as they position themselves for the important Fed monetary policy meet today where it is widely expected that the central bank would push forward yet another 25 bps rate hike taking its Fed funds rate to 2 percent. With the interest rate futures now starting to price in even a December rate hike traders would not take any big positions today and would rather wait for the post meeting statement issued by the Fed. Increased jawboning by a number of ECB officials reiterating Trichet's sentiments regarding euro's moves as being "brutal" helped the greenback stay below the $1.29 level while Germany's ZEW- an index of business sentiment- falling to multi months lows also did not help the single currency. Business houses across the Europe are concerned that growth might be stalled in 2005 due to high-energy prices and euro's appreciation. Across the Pacific the Yen hardly moved on data showing that Japan's current account surplus expanded by 9.3 percent in September even as officials continue to maintain that they would intervene in the market if yen moves were unmatched by fundamentals. The Pound could come under renewed selling pressure from the inflation report scheduled for release show a benign number which could mean an end to the BOE's tightening agenda and from comments from Gordon Brown who has further downgraded the growth prospects in the economy. Further data releases from the US include the US trade gap, which is expected to narrow down slightly.
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The dollar couldn’t have asked for a better time for the European Central Bank to comment on the rising euro. The dollar which was trading at all time lows recovered on the concern shown by the ECB on the recent spate of euro appreciation. Comments from an otherwise reluctant ECB to intervene, only reiterate the fact that despite its anti- inflationary benefits a strengthening euro will have an adverse effect on the Eurozone. The dollar came off lows in the late US trading session to the move towards the 1.29 levels. Oil prices drifting lower close to the $49 per barrel mark should also aid the dollar in its course of recovery. Sterling touched 1.86 on retail sales figures, but was dragged lower amid dollar strengthening. Traders will now shift focus to figures expected from the Eurozone, importantly the ZEW sentiment survey and will watch out for any further intervention from the ECB. The yen climbed to a five month high against the dollar to 105.30, unaffected by the developments in the European markets. Having broken the resistance at 105.60, yen could move to the next level at 105.20 on the trade figures and GDP figure expected later in the week. The markets will line up for data expected, special emphasis will be placed on comments accompanying the FOMC rate hike decision and retail sales figures from the US.
Dollar hovers near record lows aganist the single currency after comments by the ECB chief Trichet led to further sell off in the dollar despite the weekly jobless claims coming lower than expected at 332k. Last evening the ECB maintained its benchmark rate but stated that inflation would stay "significantly above 2 percent" citing oil prices as the chief culprit. Further Mr. Trichet suggested that the downside risks to the economy had risen and that fast currency movements would hurt the economy. But these comments were taken softly by the markets who took the Euro to its late session highs of $1.2897- a whisker short of its all time high at $1.2927. Conflicting news regarding Yasser Arafat's medical condition also caused confusion which led to a rise in the single currency and a fall in the crude oil prices by $2 as traders reflected that Mr. Arafat's succesor might solve the region's problems. Pound which usually mimicks the single currency's movements could not do so yesterday as yet another soft housing data and BOE's decison to leave interest rate on hold weighed on the currency. Further jawboning from the MoF in Japan helped the Japanese currency to stay near its 106 levels. But the critical event to watch out today is the October payroll numbers which is expected to come out at 160k-175k. A number above 200k is expected to lead a euro selling while a lower number could potentially fuel yet another dollar sell off.
