New Overnight Developments Abroad: Dollar & Yen Higher Ahead of ECB Decision and U.S. Labor Report

July 2, 2009

Risk aversion has strengthened: stocks are down, and the dollar and yen are firmer.

Equities fell 0.6% in Japan and Britain, 1.3% in Germany, 1.1% in France and Hong Kong, 1.9% in Thailand, and 1.4% in Singapore.

The dollar and yen are unchanged against each other and up by 0.8% against the kiwi, 0.7% versus sterling, the Swiss franc and Aussie dollar, 0.5% against the euro and 0.2% relative to the Canadian dollar.  Markets await the ECB decision at 11:45 GMT followed by the ECB press conference and U.S. monthly labor report at 12:30 GMT.  Weekly jobless claims also arrive then.

The Japanese 10-year government bond auction produced the weakest bid-cover ratio since February, and the 10-year JGB yield firmed 2 basis points to 1.36%.

Oil slid 1.4% to $68.33 per barrel, and gold dropped 0.5% to $936.60 per ounce.

U.S. car sales in June were softer than expected.  Yesterday’s ADP report on private employment caused many analysts to revise their projected loss of total U.S. jobs to a bigger figure.

The ECB is not expected to announce any changes.

Mixed verbal signals from Beijing.  A Vice Foreign Minister spoke of dollar stability, while the central bank announced plans to allow cross-border trade by firms to be settled in yuan along with promised tax support to promote such activity.

The Swedish Riksbank halved its key rate by 25 basis points to 0.25% and said that level probably would prevail for the coming year.  A rate cut had not been anticipated by analysts.  Illness kept Governor Ingves from attending today’s central bank policy meeting.

Iceland’s central bank left its key interest rate unchanged at 12%.  A series of cuts since January had lowered such previously from a peak of 18%.  Weakness in the Icelandic krona had contributed to higher on-year CPI inflation of 12.2% in June after 11.6% in May.

Japan’s monetary base climbed 6.4% in the year to June and 7.5% in the year to 2Q.  The component most sensitive to monetary policy changes shot up 59.6% over the last 12 months.

Hong Kong’s PMI-manufacturing index jumped 2.3 points to 47.1 in June.  India’s PMI slid to a still robust 55.3 from 55.7.  Officials in India’s Finance Ministry believe 7.75% growth may be attainable this year.  Consumer prices in Thailand rose 0.4% in June but fell 4.0% from a year earlier.  Consumer prices in 1H09 fell 1.6% y/y.

Unemployment in Euroland increased another two-tenths in May to 9.5% and was 2.1 percentage points higher than a year earlier.  Spanish joblessness among youth under the age of 25 has soared to a whopping 36.9%.

Euroland producer prices slid another 0.2% in May and by a greater 5.8% from a year earlier.  On-year PPI had been minus 4.6% in April and plus 1.2% last December.  Non-energy producer prices fell 2.9% in the year to May, while energy plunged 14%.  The PPI results showed more deflation than expected.

Softer coal exports were reflected in a wider-than-forecast Australian trade deficit of A$ 556 million in May after minus A$ 282 million in April.  But the deficit was 63% smaller than in May 2008.  Exports (down 9.4%) and imports (off 12.5%) each fell sharply over the last 12 months.

Norway’s manufacturing PMI index recorded its largest monthly improvement ever, a 7.9 point increase to 48.7.  Scores below 50 connote contracting activity, however.

The British construction-sector PMI slid 1.4 points to 44.5 in June, recording its 16th sub-50 score in a row.  The Bank of England’s quarterly credit conditions survey revealed some improvement in credit availability to firms and households during 2Q09 and expectations of more improvement during the third quarter.

North Korea firmed two short-range missiles in a further test of the equipment.

South African motor vehicle sales posted the smallest on-year drop in nine months, but the 24% drop was still pretty hefty.

Italy’s budget deficit in the first quarter widened to 9.3% of GDP.

Besides the labor market figures, U.S. factory orders also get reported today.  U.S. markets are closed tomorrow.

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


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