Dollar’s Turn to Decline

July 25, 2012

Wednesday trading has seen a slight correction.  The dollar has fallen 0.7% against the euro, which is back above $1.2100.  The dollar also fell by 0.7% relative to the Swiss franc and is off 0.5% versus the Australian dollar, 0.4% against the loonie, and 0.3% vis-a-vis the kiwi.  The dollar is 0.1% higher against the yen and unchanged versus the yuan and sterling.

  • U.S. corporate earnings from Apple and Netflix surprised on the downside.
  • Sterling’s been hurt by a considerably weaker-than-forecast British GDP report.
  • An IMF report on China highlighted mounting growth risks.
  • Monthly German business climate data were weaker than projected.
  • Australian CPI inflation fell in on-year terms but accelerated on a quarterly basis.
  • Considerable investor angst continues to be directed at Spain and Greece.

Japan’s Nikkei-225 index tumbled 1.4%.  Stocks also fell 1.4% in South Korea, 0.7% in China and Vietnam, 0.4% in India and Taiwan, 0.3% in Singapore and 0.2% in Australia.  But European stocks have partly recovered, gaining 1.8% in Madrid, 0.6% in Paris, 0.4% in Frankfurt, and 0.2% in London.

The yield on 10-year German bunds continued to react adversely to Moody’s decision to reassign the outlook for that government’s debt from “stable” to negative.  The yield rose another five basis points to 1.29%.  British gilts are unchanged, and the Japanese 10-year JGB has ticked a basis point lower to 0.73%.

Gold prices firmed 0.8% to $1593.70 per ounce.  Oil edged up 0.1% to $88.58 per barrel.

A 0.7% drop in British GDP last quarter was the third contraction in a row and matched the combined declines of 0.4% in 4Q11 and 0.3% in 1Q12.  Production (off 1.3%), construction (down 5.2%) and services with a dip of 0.1% each fell last quarter, and GDP as a whole was 0.8% lower than in the second quarter of 2011.

The German business climate index fell 1.9 points to a reading of 103.3 in July from 105.2 in June, 106.8 in May and 109.8 in April.  Current conditions, which had rebounded by 0.7 points in June, slumped 2.3 points in July.  Expectations dropped 1.6 points in the latest month.  The greatest sectoral deterioration in July was felt by manufacturing, which printed at negative 1.9 after +4.8 in June, +10.4 in May and +15.3 in April.  The IFO business climate index for services worsened to +15.7 from 21.3 in June and 24.8 in May.

Australian consumer prices on a seasonally adjusted basis rose 0.6% on quarter in 2Q12 after easing 0.2% in 1Q12 and firming 0.2% in the final quarter of 2011.  The 12-month increase of the CPI continued to recede, however, falling to 1.2% from 1.6% in the first quarter, 3.1% in the final period of 2011, and 3.6% between 2Q10 and 2Q11.  Both measures of core inflation eased:  the trimmed mean dropped 0.2 percentage points to 2.0%, while the weighed median was 1.9%.

In a signal of a positive response to monetary easing, Australia’s index of leading economic indicators rose 0.4% in May following a 1.3% drop in April.  The index of coincident indicators rose 0.3% according to the Conference Board.

New Zealand’s trade surplus of NZD 331 million in June was much larger than projected and enabled the 2Q12 NZD 664 million surplus to be almost as large as the first-quarter surplus.  On-year export growth in June of 6.2% was twice as much as the 3% rise in imports.

The Bank of Thailand as expected left its benchmark interest rate steady at 3.0%, but two of seven policymakers dissented in favor of a 25-bp rate cut.

Japan’s customs trade balance swung into surplus in June, albeit by just JPY 62 billion and for seasonal reasons.  The adjusted trade balance remained in deficit to the tune of JPY 301 billion.  Unadjusted exports and imports posted on-year drops of 2.3% and 2.2%.  Seasonally adjusted imports were 6.5% less in June than May.  Japan’s surplus with the United States shot up 42.6% on year, but that with Asia fell by 11.3%.  Japan recorded a JPY 2.9 trillion trade deficit in the first half of 2012, a trillion yen or 82% greater than in the second half of 2011.

South Korean consumer confidence printed at 100 in July after 101 in June.

Consumer confidence in Italy recovered 1.1 points to 86.5 in July but remained 9.8 points weaker than in March.  Dutch producer confidence slid 0.4 points to a reading of negative 5.2 in July.

The CBI survey of British industrial trends produced an improved reading of minus 6 in July after negative 11 in June and minus 17 in May.  The U.K. services index rose 0.5% in March-May compared to February-April.

U.S. new home sales and figures for weekly mortgage applications and oil inventories get reported today.  Treasury Secretary Tim Geithner speaks publicly today.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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