Greek Woes Depress Euro Against Dollar and Crosses

June 15, 2011

European Finance Ministers did not make progress finding a way to share the cost of a restructured Greek debt. Moody’s is reviewing the rating of three French banks that are vulnerable to such a restructuring.

The dollar climbed 1.0% against the euro, 0.6% versus sterling, the kiwi, and Swiss franc, and 0.3% relative to the yen.  The dollar edged 0.1% higher against the Aussie dollar despite a warning from RBA Governor Stevens about the likelihood of a future Australian interest rate hike.  The dollar slid 0.1% against its Canadian counterpart and is unchanged against the yuan.

Ten-year yields on German bunds, British gilts, and Japanese JGBs are steady.

Equities fell 1.0% in China and India, 0.7% in Hong Kong, and 0.4% in Australia.  Japan’s Nikkei index firmed 0.3%, but the German Dax and Paris Cac are 0.3% softer.  The British Ftse has edged down 0.1%.

Oil and gold prices slipped 0.6% and 0.3% to $98.76 per barrel and $1520.10 per troy ounce.

Chile’s overnight money target was raised 25 basis points to 5.25% as expected.

The Icelandic central bank left its key 7-day collateralized lending rate steady at 4.25% but said that recent wage agreements had been excessive and that a near-term rate hike might become necessary to contain inflation expectations.

The Bank of Japan upgraded its monthly economic assessment.  This was the first upgrade in three months.  The economy continues to be affected by the supply-side headwinds triggered from the Sendai earthquake but now “is showing sings of picking up.”

Reserve Bank of Australia Governor Stevens made hawkish remarks about a likely near-term rate hike to contain inflation and directed attention to the July 27 scheduled release of quarterly CPI data as a key guide to the timing of such a move.

British labor statistics were disappointing and further reduce the Bank of England’s inclination to raise interest rates.  The claimant unemployment count jumped by 19.6K in May on top of a 16.9K increase in April.  Such had risen 1.6K on balance during the first quarter.  U.K. wage pressures remain very subdued.  The on-year advance of wage earnings in February-April was 1.8% including bonus pay and 2.0% excluding such.  The Nationwide gauge of consumer confidence rose to 55 in May from a reading of 44 in April.

Euro area industrial production edged up just 0.2% in April after showing no change in March.  Energy production slumped 3.7% in the latest reported month, and overall output posted a 5.2% on-year rise, down from 5.8% in the year to March and 7.8% in the year to February.  Activity has cooled from the rapid pace at the start of 2011.  While German production was 9.9% greater than in April 2010, output posted on-year declines of 10.7% in Greece, 1.7% in Portugal and 1.6% in Spain.  Writing in Tuesday’s Financial Times, Professor Nouriel Roubini of NYU predicted that “the eurozone is heading for a break-up” because economic divergences cannot be stopped in any other socially feasible way.

New Zealand reported encouraging retail sales, which rose 0.9% on a volume basis during 1Q11 after dropping 0.1% in the prior quarter.

Australian housing starts increased 3.1% last quarter to a one-year high.  Aussie consumer confidence slid 2.6% in June, however, to a five-month low.

Singapore’s 1.9% unemployment rate last quarter was the lowest in three years.  Singapore retail sales jumped 5.7% in April and by 8.1% on year, easily beating analyst expectations. 

South Korea unemployment improved to 3.3% in May from 3.6% in April.  Import prices in that Asian economy fell 2.3% in May, their first drop in almost a year, cutting their 12-month rate of increase to 13.2% from 19.0%.  The Filipino jobless rate slid two-tenths to 7.2% in April.

Net foreign direct investment into China was 13.4% higher in May than a year earlier.  That was smaller than the increases in 1Q11 and April.

French consumer prices firmed 0.1% in May and were 2.0% above a year earlier.  The Swiss index of producer and import prices edged down 0.2% on month and 0.4% on year in May.  Danish producer prices fell 0.6% in May and posted a smaller on-year gain of 7.2% versus 8.3% in the year to April.  Czech producer prices rose 0.5% on month and 6.2% on year in May.  Hungarian consumer prices firmed 0.2% last month and were 3.9% higher than in May 2010.  Hungary also reported upwardly revised increases of industrial production for April, now showing a 0.7% increase from March and 9.5% from April 2010.

Norway’s trade surplus contracted 38.4% on month to NOK 24.2 billion in May.  Exports fell, while imports rose.  The Dutch trade surplus widened 24.7% in April to EUR 3.89 billion.  Turkish unemployment eased to an eight-month low in March.  A 9.8% rise of South African retail sales in the year to April easily surpassed expectations.

Several U.S. economic indicator releases are scheduled today:  consumer prices, net capital flows, the Empire State manufacturing index, industrial production, capacity utilization, the NAHB housing index, and weekly oil inventories and mortgage applications.  Canada’s monthly manufacturing survey figures arrive, too, and Governor Carney of the Bank of Canada speaks publicly.  So does Bini-Smaghi of the ECB. 

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

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