Investors Avoiding Risk as Central Banks Meet

May 5, 2011

The yen strengthened beyond 80/USD for the first time since March 18, touching a high of 79.58 and climbing 1.1% on balance.

Central banks in Malaysia and the Philippines hiked key interest rates by 25 basis points today.

Central banks are also meeting in the U.K., Euroland, and the Czech Republic.  Markets are positioned for an ECB signal of tightening next month.

Commodity currencies fell, with the greenback gaining 0.8% against the Canadian and Australian dollars and 0.4% relative to the kiwi.

The U.S. dollar has eased 0.5% against the Swiss franc (another sign of risk aversion) and by 0.1% against sterling and the euro.  The yuan is steady.

Japan was closed for the fourth and final Golden Week holiday, Children’s Day.

Equities dropped by 1.4% in India, 1.2% in the Philippines, 0.9% in South Korea, 0.5% in Malaysia, and 0.2% in Hong Kong.  In Europe, the Paris Cac, British Ftse, and German Dax are 0.9%, 0.6%, and 0.2% lower.  Futures point to U.S. equity market softness at the open.

Oil slumped 2.3% to $106.69 per barrel.  Such closed on Monday (before the Bin Laden news broke) at $113.52.  Gold lost 0.9% overnight to $1501.10 per ounce and is 4.0% below last week’s close of $1563.70.

Germany and Britain reported unexpectedly weak data today.

  • German industrial orders tumbled 4.0% in March and were 2.0% below the first-quarter average level in the final month of the quarter.  Domestic and foreign orders for capital goods plunged by 7.4% and 7.2%, respectively.  Overall orders still managed to rise 2.3% in the first quarter as a whole following gains of 3.1% in 4Q10, 1.6% in 3Q10, 7.7% in 2Q10 and 5.7% in the first quarter of 2010.
  • The British service-sector purchasing managers index dropped to 2.8 points from 57.1 in March to 54.3 in April.  Analysts had been expecting a score of about 56.  That was the second-greatest month-to-month deterioration since October 2008.  According to earlier reports, the construction PMI had fallen 3.1 points to 53.3 in April, and the manufacturing PMI declined to 54.6 from 56.7.

The Bank of England left its Bank Rate at 0.5% and the ceiling on its asset purchase program at GBP 200 billion as was expected.

Spanish consumer confidence recovered to a still-depressed reading of 73.2 in April from 68.3 in March. 

Iceland’s trade surplus of ISK 6.3 billion in March was similar to a year earlier.  The first-quarter ISK 24.5 billion surplus was 14% smaller than in 1Q10.

Brazil’s composite purchasing managers index fell 1.5 points in April to 52.5.  The services PMI only slid 0.3 to 53.2.

China’s composite PMI reading of 51.7 in April constitutes a 25-month low and was a full point below the March reading.  China’s services PMI eased only marginally to 51.6 from 51.7 in March.

The composite Hong Kong purchasing managers index declined to 52.9 from 54.9 in March, led by a softer rate of increase in new business.

Russia’s composite PMI improved to 55.4 in April from 55.1 the month before.  The Russian services PMI climbed to a four-month high of 55.8 from 53.3.

Ireland’s PMI for services depicted stagnation with a 50.2 reading near the no-change line, down from 51.1 in March.  Irish retail sales fell over 2% last quarter.

Australian retail sales dropped 0.5% in March.  Analysts were expecting a rise of around that much.  Sales were 2.0% higher than a year earlier.  Aussie building approvals rebounded from a 5.3% decline in February with a 9.1% advance in March but were still 18% weaker than in March 2010.

New Zealand jobs climbed 1.4% last quarter.  The jobless rate of 6.6% was a tenth percentage point lower than in the final quarter of 2010.

Filipino consumer prices rose 0.8% in April and accelerated to a 4.5% 12-month rate of increase.  Core CPI accelerated to 3.8% from 3.4%.  Monetary officials in that country lifted their key borrowing and lending rates by 25 basis points apiece to 4.5% and 6.5%, claiming that the 3-5% inflation target may be at risk.  

South African business sentiment weakened in April to a reading of 86.9 from 88.3 in March.

Scheduled North American data include U.S. jobless insurance claims, labor productivity, and unit labor costs, as well as Canadian building permits and the IVEY-PMI index.  Bernanke, Kocherlakota, and Evans of the Federal Reserve will be speaking in public today but will be eclipsed by what ECB President Trichet has to say at 12:30 GMT.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.

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