German Inflation Less Than Expected

[HenryTo]

http://www.bloomberg.com/apps/news?pid=20601100&sid=aU.3RQCDfCXg&refer=germany

The following diminishes the case for more ECB rate hikes going forward. Quoting Bloomberg:

Dec. 22 (Bloomberg) -- German consumer prices increased less than expected in December as cheaper heating oil partially offset increased travel and holiday costs during the festive season, reports from six states showed.

Prices rose 0.8 percent on the month in Baden-Wuerttemberg, the state statistics office in Stuttgart said today. From a year earlier, prices rose 1.4 percent. Economists polled before the state reports expected prices across Germany to gain 1 percent in the month and 1.6 percent from a year ago, according to the median of 23 estimates in a Bloomberg News survey.

[HenryTo]

A lot of ink has been spent on the fact that the French has been very vocal against the recent rise in the Euro.

The following article is of interest, not so much because the Euro Zone will impose currency controls but because of the fate of Airbus if the Euro continues to remain above the $1.30 level: http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/11/27/ccview27.xml

The French will not advocate currency controls over Airbus, but they will definitely push for the ECB to "manage" the currency down - along with the U.S. Fed and the BoJ.

Quote:

My hunch is that Airbus will bring matters to a head. I was told by an Airbus official last year that if the euro exchange rate went above $1.30 for long, the company was "cooked". He said the chances of this happening were almost nil.

Well, "nil" may be here. While Airbus has an order backlog of 2,177 aircraft worth $220.3bn, these delivery contracts are in dollars while costs are in euros. "This is the nub of the problem," said Louis Gallois, the Airbus chief.

In 2004, the group was shielded by currency hedges at an average rate of $0.98. This year the rate is $1.12, and the hedges are expiring fast. Soon Airbus will face the full violence of the spot market. The aerospace champion is so deeply tied up with Europe's sense of industrial self-worth that it will not be sacrificed lightly on the altar of free currency flows. When the French premier vowed to do whatever it takes to save Airbus, I believed him.

[nodoodahs]

The dollar bears need to be watching what is going on in Europe; not so much that the dollar will strengthen in absolute terms, but Europe will weaken their currency in absolute terms.

All fiat currencies are skydivers; all falling in value, but from the perspective of a rider on them, it appears they are "floating" and moving up or down relative to each other ...
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