Yen and Rupee Firm

May 16, 2014

The yen remains well-bid to the detriment of Japanese stocks.  The Nikkei lost 1.4% overnight.  The yen touched highs of 138.78 per euro and 101.39 per dollar.

In Indian lower house elections, a coalition headed by the pro-business Bharatiya Janala Party won 60 more seats than needed to secure a majority.  This was the most lopsided victory since 1984, and it lifted the rupee to an 11-month high of 59.80 per dollar.  The dark side of this result is that incoming Prime Minister Modi has a background of stirring up religious hatred by the Hindus against those in the population with muslim beliefs.  Indian share prices advanced 0.9% after a very volatile session.

The dollar is unchanged against the loonie, kiwi and sterling, down 0.1% versus the Australian dollar as well as yen, and up 0.1% against the euro, Swissie and yuan.

Equities in other markets around the Pacific Rim went up 0.8% in Indonesia, 0.2% in South Korea and 0.1% in China and Taiwan but lost 0.6% in Australia, 0.3% in Singapore, and 0.2% in New Zealand.  The slide in European stocks was extended.  The German Dax is down 0.7%.  The Spanish IBEX has lost 0.6%, while the Paris Cac is trading 0.5% lower.  Stocks in Milan, London and Zurich are down 0.4%, 0.3%, and 0.1%.  U.S. S&P futures are lower, too.

Yesterday saw 10-year sovereign debt yields slump broadly.  The 10-year JGB is two basis points lower at 0.57%, but German bunds and British gilts rebounded a basis point.

West Texas Intermediate oil gained 0.2% to $101.66 per barrel.  Gold edged up 0.1% to $1,295.20 per ounce.

Comments overnight by Fed Chairwoman Yellen said the U.S. economy had further to go before full recovery can be declared and said monetary policy will continue to support this process.

Chinese foreign direct investment rose 3.4% on year in April and 5.0% in January-April.  The Fitch rating agency characterized the whole batch of Chinese April data in a negative light that signals continuing slower growth in the second quarter.

The Central Bank of Chile kept its monetary policy rate at 4.0% as was expected.  Five 25-basis point rate reductions had been engineered between January 2012 and March 2014, but above-target inflation due largely to peso depreciation is being now closely monitored.

The seasonally adjusted trade surplus of the euro area was EUR 15.2 billion in March after EUR 15.0 billion in February, EUR 13.7 billion in January, and a monthly average of EUR 14.7 billion in the last quarter of 2013.  Exports and imports respectively recorded month-on-month declines of 0.5% and 0.6% in March.  The unadjusted surplus of EUR 31.8 billion in the first quarter of 2014 was 18.7% wider than in the first quarter of 2013, reflecting on-year growth of 1.0% in exports and -0.1% in imports.

Car sales in the 25-nation European Union advanced 4.6% on year in April, their eighth straight advance.

A worrisome development this week has been a widening of selective intra-EMU 10-year bond yield spreads.  The Greek-German differential was 76 basis points wider on Thursday than on Monday.  The Italian-German spread lengthened 29 bps.  The Portuguese and Spanish versus German spreads increased by 33 bps and 25 bps.

Japanese industrial production grew 0.7% in March, revised upward from an initial estimate of 0.3%.  Output advanced 2.9% in 1Q but was 0.3% lower in March than the 1Q mean level.  Production rose 3.2% last fiscal year (FY13) following drops of 2.9% in FY12 and 0.7% in FY11.  Japanese capacity use and capacity respectively climbed 0.4% and remained unchanged in March.

French nonfarm payroll employment dipped 0.1% last quarter, reversing a similar-sized uptick in 4Q13.  Wages climbed 0.6% last quarter.

GDP in Hong Kong grew more slowly than expected in the first quarter, rising 0.2% versus 4Q13 and 2.5% from a year earlier.  Malaysian GDP went up 0.8% on quarter and 6.2% on year, beating the 5.1% increase between 4Q12 and 4Q13.  Singapore’s SGD 4.2 billion trade surplus in April was 86% bigger than in March.

Investors await U.S. housing starts, building permits, and the U. Michigan gauge of consumer sentiment.  St. Louis Fed President Bullard speaks publicly. 

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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