China’s Data Improved Sentiment - 17.1.2012

US Dollar Asian stocks recovered on Tuesday, supported by positive economic data from China, issued early in the morning. Japan’s Nikkei Average rose 1.05% to 8466.40, despite the major US stock indices dropped yesterday, with S&P 500 losing 0.5% to 1289.09. As reports showed, China’s GDP increased in the fourth quarter 8.9% in annual figures, less than in the previous quarter (9.1%) but slightly more than economists expected (8.7%). At the same time favorable industrial production and retail sales reports for December 2011 helped to improve market sentiment even further. The data also boosted demand for Asian currencies, including the Australian dollar, which touched in Asian trading hours its highest level against the US counterpart in more than two months (1.0405). The greenback itself is weakening against all the major peers, while the currency’s index fell from its 16-month high 81.78 to 81.09. The US unit weakened against the Canadian dollar, the British pound, the Swiss franc and the Japanese yen as well. Euro The euro rose in the morning against the dollar and the yen as France sold 1.895 billion euros of one-year notes with an average yield of 0.406% yesterday, compared with 0.454% on January 9. The currency strengthened despite Standard and Poor’s cut the top credit rating of the European Financial Stability Facility to AA+, designed to provide aid to Greece, Ireland and Portugal. In a statement the company said the Fund is not fully supported by AAA-rated members, neither by top-ranking securities. In response to the rating agency’s decision, the European Central Bank President Mario Draghi questioned “…how important are these ratings… It seems to a great extent markets have anticipated these ratings changes and priced them in” as the yields are stable and the euro is rising this morning. Finally, Draghi concluded that “we should learn to do without ratings” or at least with less reliance on the ratings companies. The single currency advanced to 1.2759 versus the dollar after remaining almost flat yesterday and touching a multi-month low on Friday (1.2623).