Mixed U.S. Dollar Ahead of ECB Press Conference

July 8, 2010

Against commodity-sensitive currencies, the dollar has lost 1.0% versus the Aussie dollar, 0.5% against the kiwi, and 0.2% relative to the loonie.  The dollar has on the other hand risen 0.5% against the yen, 0.4% against sterling and 0.1% vis-a-vis the Swiss franc.  EUR/USD is steady.

Stocks in the Pacific Rim advanced by 2.4% in Australia, 2.8% in Japan, 1.4% in South Korea, 1.3% in Singapore, 1.1% in Sri Lanka, 1.0% in India, Hong Kong and Taiwan, and 0.5% in Indonesia.  But China’s market dipped 0.2% as officials there said a resources tax would be extended.  The British Ftse and Paris Cac show gains of 1.2% and 1.0%, but the German Dax and Spanish IBEX are up just 0.3% and off 0.2%.

Oil prices firmed 1.0% to $74.78 per barrel.  Gold edged 0.1% higher to $1199.80 per ounce.

The yield on 10-year British gilts eased two basis points, but those on German bunds and Japanese JGBs are unchanged.

The Bank of England’s Bank Rate and asset buying limit were left unchanged at 0.5% and Gbp 200 billion.  This expected decision will be explained in minutes of this month’s meeting due on July 21st.

Bank Negara Malaysia implemented a 25-basis point hike of its key policy rate to 2.75%.  Analysts had been evenly divided between expecting no change and an increase of this amount.  Industrial production data released earlier today showed a greater-than-forecast 12.5% on-year advance in May after 10.7% in April.

Stronger-than-anticipated June Australian labor statistics have revived talk of another rate increase there happening sooner, not later.  Reserve Bank policy has been on pause after six hikes of 25 bps each between October 2009 and May 2010.  The jobless rate held steady at 5.1% instead of ticking up a tenth as analysts were expecting.  Jobs rose 45.9K, some three times greater than forecast.  A 109K increase in the past three reported months represents an annualized 4.0% increase.

German industrial production leaped another 2.6% higher in May.  Output in April-May exceeded the 1Q level by 4.9%.  May’s level was up 12% from a year earlier.  Lost in all the concern about Europe has been a very robust recovery of its leading economy.  Industrial orders, reported on Wednesday, were 24.5% greater than a year earlier, with an April-May over 1Q advance of 6.4%.  German trade data out early today showed monthly rises of 9.2% in exports and 14.8% in imports and on-year increases of 28.8% in exports and 34.3% in imports.  The seasonally adjusted trade surplus fell to EUR 10.5 billion from EUR 12.8 billion in April and a monthly average of EUR 11.4 billion in the first quarter.  The unadjusted trade surplus of EUR 9.7 billion was identical to the surplus in May 2009, but the unadjusted current account narrowed to EUR 2.2 billion from EUR 4.7 billion a year before.

British industrial production rose 0.7% in May and 2.6% from a year earlier, beating street estimates.  Production in in the three months to May rose 2.0% both against the December-February level and from a year earlier.  Factory output rose 0.3% in May from April and 4.3% from May 2009.  The Halifax index of British house prices fell by 0.6% in June, trimming the 12-month rate of rise to 6.3% from 6.9% in May.

Several unflattering Japanese statistics got released today.

  • M1, M2, and M3 respectively rose on year by 1.7%, 2.9%, and 2.2% in June and by 1.8%, 3.0%, and 2.2% in the second quarter.  Bank loans were 2.0% lower than a year earlier in June, same as the on-year drop in May.
  • On-year export growth slowed to 33.8% in May from 42.7% in April.  Seasonally adjusted exports slid 0.5% between those months, while imports jumped 7.9%.  An unadjusted trade surplus of Y 391 billion was 0.6% smaller than in May 2009 and well below April’s Y 859 billion.
  • The seasonally adjusted current account surplus narrowed 34.4% in May.  The “Basic” balance surplus was only a third as big in May as in April due to reduced portfolio investment inflows.
  • The economy watchers index slid for a second straight month to 47.5 in June from 47.7 in May and 49.8 in April, and it was below 50 for a 37th straight month.
  • Machine tool orders posted an on-year increase of 138.8% in June, down from 192.5% in May.
  • Most importantly, core domestic private machinery orders — a leading gauge of business investment — fell 9.1% in May, three times faster than forecast.  Foreign machinery orders sank 17.9% on month after dropping 3.7% in April.

South Korean M2 and M1 posted on-year growth in May of 9.3% and 10.9%.

Turkish industrial production expanded 3.7% in May and was 15.6% greater than a year earlier. Dutch industrial output in May was 7% greater than a year before.  Romanian industrial production climbed 5.4% in May and by 14.4% from May 2009.

South African business confidence improved from 82.0 in May to 84.8 in June, best since last September.

Swiss unemployment dipped to 3.7% in June from 3.9% in May.  Swedish consumer prices were unchanged in June and up 0.9% on year after a 1.2% rise in the year to May.

New GDP forecasts from the IMF revised projected 2010 world growth up by 0.4 percentage points to 4.6% and left the 2011 forecast at 4.3%.  GDP in the advanced economies is expected to expand 2.6% this year and 2.4% in 2011.

Markets await the ECB press conference at 12:30 GMT.  Policy rates will not be changed.  U.S. jobless insurance claims are due at the same hour.  U.S. consumer credit figures arrive today as well as Canadian house prices.  Central bank decisions are also due from South Korea and Peru.

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

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