New Overnight Developments Abroad: Chinese Official Comments Reassure Dollar Holders

June 29, 2009

The dollar is slightly firmer, with gains of 0.6% against the Swiss franc, 0.3% versus the euro, 0.2% against the yen and Australian dollar, 0.1% and relative to the Canadian dollar.  Sterling is unchanged, and the kiwi has risen 0.2% against the U.S. currency.  China’s central bank chief and an official from the State Administration of Foreign Exchange made separate remarks that no changes are seen in Chinese reserve policy or in the likely dominance of the dollar in the international monetary system.

Asian stocks closed lower, with drops of 1.0% in Japan, 1.1% in Taiwan, 0.3% in Indonesia, 0.4% in Hong Kong, South Korea, and Australia and the Philippines, and 0.2% in Vietnam.  In Europe, the German Dax, Paris Cac, and British Ftse have risen 0.5%, 0.4%, and 0.1%.

Gilt and bund yields have softened slightly.  The 10-year JGB yield is steady at 1.40%.

Oil has edged 0.1% higher but remains slightly under $70/barrel, and gold slid 0.1% to $939.9 per ounce.

Japanese industrial output data were not as strong as anticipated, and retail sales remained below year-earlier levels.

  • Industrial production rose 5.9% in May, same as in April, but is expected to post smaller increases of 3.1% in June and 0.9% in July.  The inventory ratio did not drop further in May and was still 39.6% greater than a year earlier.  Production in April/May surpassed the 1Q level by 6.5% but was down 30% y/y.
  • Total retail sales were unchanged in May and off 2.8% from May 2008.  Large store retail sales fell 6.5% in May, similar to April’s on-year decline of 6.7% and worse than a 4.6% decrease between 1Q08 and 1Q09.  Large department store sales slumped 12.1%.  Clothing fell 14.4% from May 2008.
  • Auto production and exports posted 12-month drops in May of 41% and 56%.

The euro area released encouraging sentiment indices for June.  Overall economic sentiment of 73.3 in June was up from 70.2 in May and a recent low of 64.6 in March. France and Germany have recovered more than Spain or Italy.  Euroland’s overall sentiment score was the best reading in seven months.  Manufacturing confidence firmed a point to minus 32 and was 20 points better than last September.  Consumer confidence increased 3 points for a second consecutive month to minus 25.  Confidence in services also rose 3 points but was 28 points lower than last September.  Retail sector sentiment worsened two points to minus 16, while construction stagnated at minus 34.  Price expectations were mixed, rising among sellers by a point to minus 11 dipping a point among consumers to minus nine.

Euroland’s business climate index rose 0.14 to minus 3.97 in June.  The Conference Board’s Index of Leading Economic Indicators for the euro area increased 1.8 points to 95.4 in May.  The recovery this year offsets just a quarter of the prior drop since mid-2007.  The data point to stability at very depressed levels.

The Bloomberg retail PMI for Germany fell to 46.0 in June from 46.3 in May and was below 50 for a 13th straight time.

Spanish consumer prices posted a slightly larger 1.0% on-year drop in June than the 0.9% decline in the year to May.

British money and credit data were disappointing, casting doubt on the effectiveness of quantitative easing so far.  Mortgage approvals in May of 43.4K were 2K less than expected.  New mortgage lending of Gbp 324 million in May was the lowest in at least 16 years and 64% less than in April.  M4 lending to non-financial firms actually dipped.  M4 growth of 16.6% hasn’t accelerated.

Britain’s Hometrack index for home prices was unchanged in both May and June but posted a smaller on-year decline in June of 8.7% after falling 9.6% in the year to May.  The economic sentiment index rose 1.7 points to 68.8 in June.

New Zealand building permits firmed 3.5% in May, recording their third increase in four months.  New Zealand also reported a record NZ$ 858 million trade surplus in May compared to forecasts of around NZ$ 250 million. Exports rose 8.5% from April, whereas imports slid somewhat.

Romanian housing starts fell 2.9% in the year to May.  Bulgarian producer prices dropped 3.2% in the year to May.

U.S. data today are limited to the Dallas Fed survey.

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


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