New Overnight Developments Abroad: Dollar and Asian Stocks Lower

June 16, 2009

Yesterday’s dollar upward spike proved short-lived.  The dollar has dropped 1.1% against the yen, 0.8% versus sterling, 0.7% relative to the euro, 0.6% against the Swiss franc and Aussie dollar, and 0.5% against the Canadian and New Zealand dollars.

The Nikkei (down 2.9%) suffered its biggest daily decline since late March.  Stock markets elsewhere in the Pacific Rim fell 4.4% in Vietnam, 3.8% in the Philippines, 1.2% in Singapore, 1.9% in Indonesia, 2.5% in Thailand, 0.9% in South Korea, 1.8% in Hong Kong, 1.7% in Australia, and 1.4% in New Zealand.

But the German Dax, British Ftse, and Paris Cac are trading up 0.2%, 0.4%  and 0.3% in Europe.

Oil and gold rebounded 1.4% and 1.1% to $71.60/barrel and $937.40 per ounce.

The 10-year JGB yield gave back another 3.5 basis points to 1.465% and is 9.5 bps below last week’s high of 1.56%.

The Bank of Japan deliberated for six hours and 23 minutes over two days but made no policy changes by unanimous vote as expected.  Governor Shirakawa’s press conference struck a note of caution, attributing economic improvement to temporary factors and calling final demand conditions still fragile.

Minutes from the June 2nd Reserve Bank of Australia meeting contained no surprising revelations. Policy still formally has an easing bias, but officials are comfortable with holding their key rate steady.  Australia avoided consecutive quarters of negative growth.  It will take a turn for the worse to prompt any further rate reductions.

Senior officials in Russia suggested a predisposition to diversify reserve holdings into some non-dollar denominations.  This signal follows a spate of reassuring comments, for example from Japanese finance minister Yosano voicing confidence in the dollar as the dominant international currency.

The ZEW Institute of Germany released better-than-forecast June readings for investor sentiment toward that economy and all of Euroland.  Germany’s expectations index jumped to 44.8 from 31.1 in May and 13.0 in April, while current conditions printed at minus 89.7 after minus 92.8 in May.  The euro area’s expectations index was 42.7 following 28.5 in May and 11.8 in April, with the current situation measured at minus 90.7 after minus 93.2 in May.

The slide in British inflation continued to prove sticky because of former sterling depreciation and higher indirect taxes, falling less than hoped.  For a 20th straight time, the 12-month CPI pace of 2.2% in May surpassed the 2% target and was only a tenth less than in April.  On-year RPI inflation of minus 1.1% was higher than the prior month’s minus 1.2%.  Core inflation rose 0.4% on month and 1.6% on year.

Labor costs in the euro area increased 3.7% in the year to 1Q09.  Although less than the fourth quarter’s record 4.0% advance, this outcome surpassed street forecasts.  Final CPI data in the bloc revealed a monthly uptick in May of 0.1% and an as-expected zero rate of on-year inflation.  Core CPI was unchanged from April and printed at a 12-month pace of 1.5%, down from April’s 1.7% but the same rate as seen in the year to March.

Swiss industrial production tumbled 13.1% in the first quarter and by 9.5% from the first quarter of 2008. Industrial sales and orders fell by 9.2% and 17.6%.

Italian CPI inflation slowed to 0.9% in May from 1.2% in April.  Austrian inflation slowed to 0.3% from 0.7%.

The jobless rate in The Philippines slid to 7.5% in April from 7.7% three months earlier.

This will be a big day for U.S. data.  Housing starts and permits, producer prices, and industrial production figures are all scheduled.  Canada will be releasing productivity and unit labor costs.  Central banks in Turkey and Chile will make interest rate announcements.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.


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