Some Robust European Data Sends Stocks Up and Dollar Down

July 22, 2010

The dollar lost 1.3% against the Australian dollar, 1.2% versus the kiwi, 1.0% relative to the Swiss franc, 0.9% against the euro, 0.8% vis-a-vis the Canadian dollar and sterling and 0.3% against the yen.

Following Fed Chairman Bernanke’s somber testimony yesterday, stocks were mixed in the Pacific Basin, with looses of 0.9% in Australia, 0.8% in South Korea, 0.7% in New Zealand, 0.5% in Taiwan, 0.4% in Malaysia, and 0.3% in Thailand but gains of 1.2% in China, 1.0% in Singapore, 0.8% in India and 0.5% in Hong Kong.  The tone improved in European trading, however, and the Paris Cac, German Dax, and British Ftse show gains so far of 1.6%, 1.3% and 0.8%.

The yield on ten-year JGBs fell four basis points to 1.06%.  Germany’s 10-year bund yield is one basis point softer.  Gilts are steady, but indicators are for a higher Treasury yield at the open.  Stress test results on European banks get revealed tomorrow.  Investors seem to be somewhat optimistic.  Fed Chairman Bernanke meanwhile reprises his testimony today before the House Financial Services Committee.

Oil prices firmed 0.6% to $77.03 per barrel.  Gold is 0.3% softer at $1188.70 per troy ounce.

Flash July purchasing manager indices for Euroland, Germany, and France showed surprising improvement.

  • The euro area’s composite index rose to a 3-month high of 56.7 in July from 56.0 in June. with both production and orders signaling faster growth than the month before and jobs at a 27-month peak.  The manufacturing index rose 0.5 to 56.0, a quarter-point better than the 2Q mean score.  Economic growth at the start of the third quarter appears on a par with the second quarter, where non-annualized GDP growth of 0.6-0.7% seems probable.
  • The German composite reading of 59.3 was 2.6 points higher than June’s score.  Manufacturing advanced 2.8 points to a 3-month high of 61.2, just shy of the 2010 best reading of 61.5 in April.  Services improved 2.5 points to a 35-month high of 57.3.
  • The French composite index edged 0.3 higher to 59.9 despite another decline in the manufacturing component to a ten-month low of 53.7 from 54.8 in June, 55.8 in May and 56.6 in April.  Services, on the other hand, improved to 61.3 from 60.8 in June and was just a tenth shy of the 44-month high in May.

Industrial orders in the euro area jumped 3.8% in May, surpassing expectations, and were 22.7% greater than a year earlier.  The core measure of orders, which excludes heavy transportation equipment, increased 2.6% on top of gains of 4.4% in February, 4.7% in March, and 0.9% in April.  Orders in April/May surpassed their 1Q average level by 7.6%.

According to INSEE, French business sentiment climbed back to 98 in July from 97 in June.  Such had also been 98 in both April and May.  But consumer confidence remained low with an unchanged score of minus 39.

The volume of British retail sales also surprised on the upside, advancing 0.7% in June (1.3% on year) and by 1.7% in the second quarter after dropping 2.5% in the first quarter.  Non-auto retail sales increased 1.0% in June and 3.1% from a year earlier.

Danish consumer confidence swung to plus 4.1 in July from minus 1.5 in May.

Dutch unemployment edged a tenth lower in June to 5.5%.

A central bank quarterly survey of bank lending conditions last quarter in Norway found rising corporate credit demand, falling household credit demand, and marginally tighter household credit conditions.  These trends are likely to persist.

Japan’s all-industry index, a monthly supply-side gauge of GDP, climbed 0.2% in May on top of April’s solid 1.9% advance.  Industrial production edged up 0.1%, while services declined by 0.9%.  The overall measure rose because of solid gains of 8.9% in construction and 0.9% in government spending.

Hong Kong consumer prices in June were 2.8% higher than a year earlier.  Taiwanese unemployment last month was 5.2%.

Besides the Bernanke testimony, the United States today releases the FHFA house price index, existing home sales, and weekly jobless insurance claims.  Canada reports retail sales, and the Bank of Canada unveils a new quarterly monetary policy report.  The South African Reserve Bank is not expected to change its 6.5% benchmark interest rate.  Late yesterday came news that the Central Bank of Brazil’s Selic interest rate was raised 50 basis points, not 75 bps as forecast.  The new Brazilian rate is 10.75%, up from 8.75% prior to late April.  Euroland releases its preliminary estimate of consumer confidence today.

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

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