Euro, Kiwi, and Aussie Dollar Weaker as G-20 Leaders Assemble in Toronto

June 25, 2010

The dollar advanced 0.8% against the New Zealand dollar and 0.4% against the euro and Australian dollar.  The greenback also rose 0.2% against sterling and 0.1% against the yen and Canadian dollar.  The Swiss franc kept pace with the dollar and hit a record 1.3508 per euro high.  Investors are downbeat on global growth prospects.  The post-FOMC buzz has focused on the new admission by Fed officials that “underlying inflation has trended lower” and what might be revealing about new caution against future deflation in the United States. 

Stocks continued to retreat on a bet of weaker global growth.  Overnight declines amounted to 1.9% in Japan, 1.5% in Australia and Taiwan, 0.9% in India, 0.8% in China, and 0.6% in South Korea and Pakistan.  Stocks in Germany, France, and Britain have so far lost another 0.8%, and Spain’s bourse is down 0.6%.

Ten-year gilt, JGB, and bund yields recovered a basis point.

Oil and gold prices slid by 0.6% and 0.2% to $76.09 per barrel and $1244.00 per ounce.

Japanese consumer prices edged down 0.1% in May, but on-year deflation of 0.9% overall and 1.2% core (without fresh food but including energy) was less than in April and not as intense as forecast.  The core-core CPI (excluding both seasonal food and energy) showed a 12-month drop of 1.6%, same as in April.  Tokyo consumer prices in June rose 0.2% seasonally adjusted and fell 0.9% on year.

French GDP growth last quarter was confirmed at 0.1%, down from 0.6% in 4Q09 and 0.3% in 3Q09.  GDP was 1.2% greater than in the first quarter of 2009.  In the latest quarter, both personal consumption and government expenditures were flat, while investment sank 0.9%.  Net exports provided the positive impetus, as export growth of 4.1% was about twice as fast as the advance in imports.

German import prices rose by a greater-than-forecast 0.6% last month, lifting the 12-month rate of advance to 8.5% from 7.9% in April, minus 1.0% last December and minus 13.0% in July 2009.  Non-oil import prices leaped 1.2% on month and increased 5.5% on year.  Export price inflation of 3.6% was the most since October 2000.  The first German state to report June consumer prices, Saxony, showed a rise of 0.1%, same as in May.  On-year inflation in Saxony ticked down to 1.0% from 1.1%.

Following last month’s election debacle for the ruling Christian Democrats in North Rhine Westphalia, the regional party leader, Juergen Ruettgers, is resigning.

Spain reported producer price inflation in May of 3.8% but a monthly increase of just 0.2%.

Total German construction orders in April were 1.3% greater than a year before, but civil engineering orders slumped 6.6%.  Dutch business sentiment fell 0.7%.  Belgium yesterday reported a second straight deterioration of the business climate to minus 7.7 from readings of minus 4.9 in May and minus 2.4 in April.

Italian hourly wage inflation was 2.5% in May, a tick above expectations.

The Chinese yuan predictably firmed a bit on the day G-20 leaders are arriving in Toronto for a summit.  Beijing officials  pre-empted discussion about its currency policy by ending the renminbi/U.S. dollar peg last Saturday.  But it has become apparent that the rate of appreciation against the U.S. currency will be exceedingly gradual especially if the euro remains weak.  Europe’s sovereign debt problem and collateral damage inflicted by the need to tighten fiscal policies in a fragile economic environment will top the summit’s agenda.

European military leaders were shocked and dismayed at the dismissal of U.S. General McCrystal, fearing a shift could jeopardize the mission in Afghanistan.

There were more signs of strength in emerging Asia.  Question is whether this support will offset weaker trends in Advanced economies.  Stock markets are betting no.

  • South Korean consumer confidence improved to 112 in June from 111 in May but remained below the high of 117 last October.
  • Industrial production in Singapore was 58.6% greater than a year earlier in May, a much bigger jump than forecast.
  • Filipino imports were 45.3% higher in April than a year earlier.
  • India continues to experience a good rainy season.

The New Zealand trade surplus of NZD 814 million in May was up from NZD 665 million in April.  Exports and imports posted on-year rises of 6.0% and 10.8%.

The final revision of U.S. first-quarter GDP is due today, and the University of Michigan reading on consumer confidence arrives as well.

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

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