A Shift in Focus from Euroland to the United States

July 2, 2010

A watered-down, more politically palatable proposed tax on Australian mining was announced by the new prime minister.  The Aussie Dollar and kiwi are up 0.4% and 0.5% against their U.S. counterpart on relief that growth in Australia will not be damaged as much as feared previously.

The Swiss franc retreated 0.5% against the dollar and 0.4% relative to the euro on mounting fears that Swiss monetary authorities will resume intervention to counter excessive strength in their currency.  After allowing the franc to strengthen past 1.50 per euro last December, it took until June 4 for it to enduringly move past 1.40/EUR.  The speed of appreciation had picked up more recently, with the cross moving from 1.3923 on June 17 to 1.3074 on July 1st.

Other dollar movements overnight are marginal, as investors await the U.S. Labor Department jobs report for June.  The overall figure will be negative because of the shedding of about 240K temporary census workers.  Analysts are predicting an overall jobs drop of about 130K, but street talk this week has tilted toward a larger decline in light of the recent string of worse-than-expected U.S. data. 

The dollar is 0.2% softer against sterling, unchanged against the loonie, and up 0.1% against the yen and euro.  EUR/USD retains a 1.25 handle.  Yesterday’s quote of $1.2541 was the strongest euro since May 24 and up from a 2010 low of $1.1878 on June 7.  After breaking through 87.0 for the first time this year and touching 86.96 on Thursday, dollar/yen again has an 87 handle.

In the first two weeks since China unhinged the yuan from the dollar, the currency has advanced 0.8%.  The June 18 – July 2 rate of climb would cumulate to about 22% if sustained for a year.  That’s more than officials are expected to allow.

The yield on 10-year JGBs rose 3 basis points to 1.11%.  German bunds and British gilts are generally steady.

Stock market moves have also been generally mild and mixed.  Stocks are up 1.1% in Taiwan, 0.7% in Thailand, 0.6% in Britain, 0.3% in China and Germany, and 0.2% in France.  They were unchanged in Australia but are down 0.9% in Korea, 1.1% in Hong Kong, 0.7% in the Philippines, and 0.4% in India.

Oil is steady on the day but down for the week at $72.93 per barrel.  Gold edged 0.4% higher to $1211.60, which is still down 3.5% on the week.

Euroland unemployment held steady in May at 10.0%, but youth unemployment edged back to 19.9% from 20.0%.  The overall jobless rate was 9.4% in May 2009 and 7.4% in May 2008.  Joblessness was as low in May as 4.3% in the Netherlands and 7.0% in Germany and as high as 19.9% in Spain.  Analysts were expecting a 10.1% jobless rate to be announced.

Producer prices in the euro area climbed by an as-expected 0.3% in May, lifting the 12-month pace of increase to 3.1%.  The PPI had fallen 2.9% in the year to December 2009 and risen just 1.2% in the year to December 2008.  Energy prices were flat on month in May after back-to-back gains of 1.8% in March and 1.9% in April.  In on-year terms, energy prices are up 7.0%, while all other producer prices have risen 1.7%.  The latter posted a 0.4% monthly advance, however.

Britain recorded a construction purchasing managers index of 58.4 in June, similar to 58.5 in May and 58.2 in April.  The levels convey strength.

Italy’s budget showed a deficit of 8.7% of GDP in the first quarter, significantly higher than the shortfall in the final quarter of 2009.

The global purchasing managers index in manufacturing compiled by J.P. Morgan Research fell to 55.0 in June from 57.0 in May.  The production index averaged 59.1 in 2Q, highest in six years.  World growth was solid in the spring quarter, but momentum faltered as the quarter wore on.

Japan’s monetary base in 2Q10 was 3.4% greater than a year earlier, up from a rise of 3.1% in the year to the first quarter.  However, growth in the policy-sensitive portion slowed.  Bank of Japan balance sheet assets contracted 6.4% between the end of May and the end of June.  Stock and bond transactions with non-residents generated a sizable net outflow of 1.371 trillion yen last week, almost four times bigger than the prior week’s outflow.

Hong Kong retail sales were 19.7% higher in May than a year earlier.  South African auto sales were 20.7% greater in June than a year earlier but had shown a greater 28.6% advance in the year to May.

Goldman Sachs trimmed its Chinese growth forecast to 10.1% for 2010 from a previous projection of 11.4%.

The United States reports labor market data today as well as factory orders.  Many desks will close early ahead of the Independence Day weekend.

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

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