Verbal Vote of Confidence for Euro from China

May 27, 2010

China’s State Administration of Foreign Exchange released a statement asserting China remains a long-term investor in Europe and denying rumors of any consideration of downsizing its euro portfolio.  The statement, although just words (but what else could realistically be said?) boosted world stocks and bond yields while depressing the dollar.  British PM Cameron also made comments that a strong European Currency Union is in Britain’s best interest.

The U.S. currency’s biggest overnight losses have been against commodity-sensitive currencies like the Aussie dollar (2.2%), kiwi (1.6%) and loonie (also 1.6%).  The dollar has fallen 1.1% against sterling, 1.0% against the euro, and 0.8% versus the Swissy, but the greenback is 0.4% firmer relative to the yen.

Stocks advanced 1.7% in India and Australia, 1.6% in China, Singapore, Malaysia and South Korea, 1.1% in Thailand and Taiwan, and 1.2% in Japan and Hong Kong.  In Europe, stocks have traded up by 2.3% in Germany, 2.2% in France, 1.9% in Britain, and 1.5% in Spain.  U.S. stock futures point to an increase at the open.

Ten-year British gilt and German bund yields are two basis points higher.  The 10-year JGB yield rose 4 basis points to 1.26%.

Oil prices increased 2.9% to $73.56 per barrel.  Gold edged 0.1% lower to $1213.80 per ounce.

Japan recorded a Y 742 billion customs trade surplus last month, up from Y 50 billion in April 2009.  In on-year terms, total exports rose 40.4%, while shipments to the U.S, EU and Asia went up by 91.3%, 65.5%, and 45.3%.  Imports were 24.2% greater than a year earlier.  The seasonally adjusted trade surplus 5.1% to Y 729 billion, as the monthly 3.4% rise of imports outstripped a 2.3% increased in exports.

New Zealand’s latest reported trade surplus was 15.7% bigger than a year earlier, and its 12-month accrued trade balance swung into surplus for the first time since the year to July 2002.

Australian business investment unexpectedly dipped 0.2% last quarter.  A proposed mining tax deterred corporate spending.  The weaker-than-expected result prompted analysts to scale back forecasts of GDP growth in the quarter.  The data are due next week.

Filipino GDP grew 7.3% from a year before in the first quarter, almost twice as much as forecast and up from 2.1% in 4Q09.  GDP  in calendar 2009 had expanded just 1.1%.

South Korea’s current account surplus narrowed 17% in April from March to $1.49 billion.  Exports were 30% greater than a year earlier.  Hong Kong’s HK$ 35.2 billion trade surplus in April reflected on-year export growth of 21.7% and a 28.8% advance in imports.

Taiwan’s index of leading economic indicators firmed 0.4% in April after a 0.3% rise in March.  The coincident index slowed, however.

South African producer price inflation accelerated to a 12-month pace of 5.5% in April from 3.7% in March.  There was a 1.5% monthly rise in the PPI.

French consumer confidence continued to drift lower in May, printing at minus 38 versus a long-term average of minus 18 and readings of minus 37 in April and minus 33 in February.

Business sentiment in Italy surpassed expectations, rising to a 23-month high of 96.2 in May from 95.9 in April.  Italian hourly wage growth of 2.4% on year in April compared to 2.3% in March.

A 5% rise is projected this year in Swedish real investment.  Sweden’s producer price index slid 0.2% in April and posted a 1.0% increase from a year earlier.  Domestic producer prices slid 0.3%, but import prices were 0.7% higher on the month. 

Swiss employment in 1Q10 was 0.1% higher than a year earlier after dipping 0.1% between 4Q08 and 4Q09.

Among five reporting German states, consumer prices in May were unchanged on month in Hesse, up 0.1% in North Rhine Westphalia and Saxony, and up 0.2% in Brandenburg and Bavaria.  These are running marginally above expectations.  The CPI in April had dipped 0.1%.  On-year inflation ranged from 0.8% in Hesse to 1.2% in Bavaria.  Germany’s DIW Institutes projects 0.7% GDP growth between 1Q10 and 2Q10.

Spanish retail sales fell 2.3% between April 2009 and April 2010.  Housing permits in Spain, which experienced a crushing housing market bust, were 7.6% lower in March than a year before.

In Britain, the monthly retail sector survey by the business lobby, CBI, revealed a sharp deterioration of activity in May.  The index swung to minus 18 from plus 13 in April, confounding expectations of a one-point uptick.

Scheduled U.S. data today included revised GDP last quarter — could be upward by as much as a half-percentage point — as well as the KC Fed index and weekly jobless insurance claims.  No change is expected from today’s Colombian central bank interest rate policy meeting.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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