Weaker Dollar But Strengthening Stocks

June 14, 2010

The dollar has a softer tone, with losses from Friday of 1.4% against sterling, 1.2% versus the euro, 1.1% against the Swiss franc and Australian dollar, 0.8% relative to the kiwi, 0.5% against the Canadian dollar.  The greenback is 0.1% firmer against the yen.  Market chatter is starting to question whether the dollar is changing direction or just consolidating its uptrend.

Equities in the Pacific Rim rose 1.8% in Japan, 1.7% in South Africa, 1.6% in Australian and India, 1.5% in Thailand, 1.2% in Taiwan, 0.9% in Hong Kong and Indonesia, and 0.8% in Singapore.  In European trading, the British Ftse, Paris Cac and German Dax are 1.9%, 1.5%, and 1.2% stronger.

Ten-year German bund and British gilt yields are 7 and 5 basis points higher.  The equivalent Japanese JGB is unchanged at 1.24%.

Oil and gold prices firmed 2.1% and 0.1% to $75.36 per barrel and $1231.50 per troy ounce.

A reported 0.8% increase in euro area industrial production in April after an upwardly revised 1.5% gain in March surpassed analyst expectations and lifted the on-year advance to 9.5% from 7.7% in March and 4.1% in February.  The overall increases was paced by gains of 2.2% in intermediate goods and 1.1% in capital goods.  Geographically, production increases were reported in Italy of 1.0%, Germany of 0.8%, Finland of 1.3% and the Netherlands of 1.4%, and these outweighed drops of 4.4% in Portugal, 10.9% in Ireland, 3.4% in Greece, 0.4% in France and 0.3% in Spain.  April output exceeded the 1Q average level by 2.1%.

The Swiss overall PPI/import price index increased 0.3% in May.  The on-year comparison accelerated to 1.4% from 0.8% in April.  Domestic producer prices edged only 0.1% higher, but import prices rose by 0.7% on month and 2.8% on year.

Italian labor costs were 3.6% higher than a year earlier in the first quarter of this year.

Investors were encouraged by revised projections from the British Office of Budget Responsibility that implies a halving of the deficit over four years.  The new government’s emergency budget will be presented eight days from now.

The Bank of Japan began a two-day interest rate policy meeting that is not expected to change any settings.  The Japanese Ministry of Finance released results of a new quarterly corporate survey.  Business sentiment among large firms improved from minus 2.4 in the first quarter to +4.0, and respondents anticipate scores of 10.1 next quarter and 9.3 in the final quarter of this year.  Small firms continue to lag however, with an overall minus 32 reading in 2Q10 and a breakdown of minus 33.9 for small manufacturers and minus 33.8 for other small firms.

Indian WPI inflation accelerated unexpectedly to 10.2% in May from 9.6% in April, kindling expectations of higher interest rates in that economy.

South Korean import prices jumped 2.7% in May and posted a 12-month advance of 11.3%, up from 5.1% in the year to April.  Export prices increased 2.8% but by only 0.4% from a year earlier.  The won appreciated sharply on a clarification of foreign exchange market rules.

South African consumer confidence dipped to 14 in the second quarter from 15 in 1Q10.

New Zealand retail sales figures were disappointing again, posting a 0.3% drop in April overall and a 0.2% dip on the core ex-auto index.  House prices in New Zealand slid 0.4%.  The Reserve Bank of New Zealand last week joined the ranks of those central banks that have begun to raise key short-term interest rates.

No significant U.S. data will get released today.  Canada reports motor vehicle sales.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



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