Swissy Strengthens, Kiwi Weakens

June 28, 2010

The summit of G-20 leaders in Toronto over the weekend released a statement that had something for everybody.

  • Omitted any reference to the yuan or, more generally, foreign exchange conditions and policy coordination.
  • Identified a strengthening recovery as the key near-term priority.
  • Warned of the downside risk from a synchronized fiscal adjustment across several major economies.
  • Said the recovery would be uneven and fragile.
  • Committed rich countries to a 50% cut of budget deficits by 2013 and a reduction of debt-to-GDP ratios by 2016.
  • Advised countries with serious fiscal challenges to accelerate the pace of budget consolidation.
  • Advised surplus countries to reduce reliance on net foreign demand.
  • Pledged to tighten controls over financial institutions, adhering to a four-pillar reform agenda.

The U.S. dollar is 0.6% weaker against the Swiss franc but 0.9% stronger against the New Zealand dollar.  Other greenback movements have been narrowly mixed, with dips of 0.1% against the Canadian dollar and Chinese yuan, no change against sterling, upticks of 0.1% against the yen and Aussie dollar, and a 0.2% rise against the euro.

Stocks in Europe showed relief that the G-20 leaders put growth above austerity on the near-term agenda.  The Spanish IBEX, German Dax, and Paris Cac are trading 1.8%, 1.2% and 1.1% above Friday closing levels.  Even the British Ftse has risen 0.6%.  Earlier in the Pacific Rim, equities rose 1.4% in Thailand, 1.1% in India, and 0.6% in Singapore, but losses were posted of 0.7% in China and Australia, 0.5% in Japan, and 0.8% in Pakistan.  U.S. futures are higher.

Ten-year sovereign debt yields firmed one basis point in Japan, Germany, and Great Britain.  The U.S.-German bond spread is its widest since mid-February.

Oil slid 1.0% to $78.05 per barrel.  There are unconfirmed reports that BP efforts to cap the oil leak may accomplish that goal much sooner than August.  Also, Tropical Storm Alex continues to steer a course that will take it well away from the oil-producing areas in the Gulf of Mexico.  A 0.3% further firming of gold prices to $1259.80 per ounce was a background support for the Swiss franc, today’s strongest currency.

Japanese retail sales in May were somewhat disappointing.  Total sales dropped 2.0% on month and posted an on-year increase of 2.8%, down from gains of 4.9% in the year to April and 3.8% in the year to 1Q10.  Large-store retail sales were 4.0% lower than in May 2009, with clothing and food posting drops of 3.5% and 4.3%.

Business confidence in New Zealand unexpectedly sagged to 38.5% in June from 45.3%.  Analysts anticipated a moderate improvement.

The new Australian prime minister, Julia Gillard, is reportedly prepared to water down her predecessor’s planned tax on mining profits, but any compromise still faces stiff legislative opposition from conservatives.

Among six reporting German states, consumer prices rose 0.1% on month in four instances and were unchanged in the other two cases, while on-year increases fell in each state by 0.1 to 0.4 percentage points.

Money and credit growth remained extremely subdued in Euroland.  M3 in March-May was 0.2% lower than a year earlier.  M3 also fell by 0.2% in May from a year earlier.  Loans and credit to the private sector only rose on year by 0.2%.  Mortgage lending was up 3.1%, but loans to firms fell by 2.1%.

Unconfirmed reports claim that Britain’s junior coalition partner, the Liberal Democrats, may oppose certain parts of the recently proposed austerity budget.

The Hometrack index of British house prices edged up 0.1% in June and to a year-over-year pace of 2.1%.

Sweden recorded a SEK 2.7 billion trade surplus in May, down from SEK 6.4 billion in April and SEK 8.1 billion in May 2009.  Imports advanced 2.7% on month and 25.6% on year, while exports slid 1.5% from April and rose 16.1% on year.  The January-May surplus of SEK 25.4 billion was down 35.4% from a year before.  Swedish household lending rose 9.1% between May 2009 and May 2010.   Business sentiment in Finland weakened in June.  Retail sales volumes in May were 1.8% lower than a year before.

Taiwan’s index of leading economic indicators rose 0.3% last month after a gain in April of 0.1%.

U.S. Senate icon Robert Byrd, who was elected initially in 1952, has died.

U.S. personal income and spending data will be released today.  The Dallas Fed index also arrives.  The Bank of Israel holds a policy meeting but is not expected to raise its interest rate further at this time.  Israel was the very first central bank to implement an increase last year.  Just three days remain in the second quarter.

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

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