Euro Retaining Firmer Tone

June 18, 2010

The euro touched $1.2416, best since May 28, and on balance has given up just 0.1% from Thursday’s close.  Europe’s common currency has risen 2.3% so far this week.

In a quiet end to the week, the dollar otherwise shows losses today of 0.5% against the yen and 0.2% versus the Swiss franc but is up 0.2% relative to the Canadian dollar and 0.1% higher versus the New Zealand and Australian dollars.  Sterling is unchanged.  Korea’s won has gained almost 1%.

European stocks extended their rise to eight days.  The British Ftse, Paris Cac and German Dax are up by 0.5%, 0.3%, and 0.2%.  The Nikkei was unchanged, and stocks rose 1.3% in Indonesia, 1.0% in Malaysia, 0.7% in Hong Kong and 0.5% in Australia.  China’s bourse, down 1.7% and off 23% since end-2009, was a notable exception to this constructive tone.

Concern about sovereign debt has been alleviated by the planned release of European bank stress test results, a better-than-expected Spanish 10-year bond auction yesterday, and tough talk by the new Japanese prime minister, Kan, about trimming Japan’s deficit.  Chinese officials denied they seek a large trade surplus and argued that next week’s G-20 summit (June 26-27 in Toronto) should focus on Europe’s debt problems, not the yuan’s peg to the dollar.

Ten-year British gilt and German bund yields are 4 and 2 basis points higher, while the JGB yield is 2 basis points lower.

Oil and gold prices settled back 0.8% and 0.3% to $76.19 per barrel and $1245.30 per troy ounce.

Britain posted smaller-than-projected budget shortfalls and greater-than-assumed tax revenues last month.  Public-sector net borrowing amounted to Gbp 16.0 billion, down from Gbp 17.4 billion a year earlier, and April’s figure was revised downward by Gbp 1.7 billion to Gbp 8.3 billion.  The public-sector net cash requirement of Gbp 12.0 billion was 37% smaller than than in May 2009.  But a debt/GDP ratio of 62.2% was 6.8 percentage points greater than in May 2009.  The new government is poised to announce large emergency budget cuts.

British M4 was steady on month in May and recorded a reduced on-year advance of 2.8% after 3.2% in April.  Mortgage approvals improved to 51.0K in May from 49.9K in April.  Data from the Council of mortgage lenders put gross mortgage lending in May at Gbp 11.3 billion, slightly over 7% greater than in April and nearly 11% above the May 2009 level.

Minutes from the Bank of Japan Policy Board meeting of May 20-21 revealed continuing pressure from the Ministry of Finance for monetary policy to do more to combat deflation.  Finance Minister Kan at the time of that meeting is now Japan’s prime minister.

Malaysian consumer prices rose 1.6% in the year to May, which was as analysts had expected.

Italian industrial orders shot up by a considerably greater-than-expected 4.7% in April and were 20.6% higher than a year earlier.  Sales were 6.4% above their year-earlier level.

German producer prices rose 0.3% in May after monthly gains of 0.7% in March and 0.8% in April.  On-year PPI inflation of 0.9% compares to 0.6% in April, minus 7.8% in July 2009, minus 4.2% in 2009 on average, and plus 5.5% in 2008.

Dutch consumer confidence softened to minus 18 in June from minus 16 in May.  Such was minus 24 in June 2009.

Gross wages in Hungary were 1.1% higher than a year earlier in April.

Canada will report its index of leading economic indicators as well as international securities flows later today.  The Bank of Mexico’s scheduled policy announcement is expected to leave the key interest rate at 4.5%.

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



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