Currency Thoughts

Strong European GDP Reports Lift Euro

May 13, 2011

A squeeze on euro short positions saw the common currency touch an overnight high of $1.4340.  In spite of the dollar’s “strong” week, $1.434 was back to last Friday’s close.  The dollar has to run to stand still.  The greenback at present is down 0.4% against the yen and 0.3% against the euro but shows overnight gains of 0.4% relative to the kiwi, 0.2% against sterling and the Swiss franc, and 0.1% against the Canadian dollar.  The yuan and Aussie dollar are unchanged from yesterday’s closings against the U.S. currency.

A rejuvenated investor predisposition for risk can be seen in mostly stronger equity markets, where share prices gained 1.1% in India and Singapore, 0.9% in Hong Kong and China, 0.6% in Indonesia and Malaysia, and 0.3% in Pakistan, Sri Lanka and Australia.  The British Ftse, Paris Cac, and German Dax have so far traded up 0.8%, 0.5%, and 0.4%.  An exception has been a 0.7% drop in the Japanese Nikkei-225.

The yields on 10-year sovereign bonds firmed one basis point in Japan, Britain, and Germany.

Oil and gold prices recovered 0.9% and 0.4% to $99.82 per barrel and $1513.20 per troy ounce.  U.S. officials want higher margin requirements to curb commodity market speculation.

First-quarter GDP growth in the euro area of 0.8% on quarter and 2.5% on year surpassed expected gains of 0.6% and 2.2%.  GDP had risen 0.3% on quarter and 2.0% on year in the final quarter of 2011.

• German GDP climbed 1.5% last quarter and by 4.8% on year, accelerating from 3.8% in the year to 4Q10.  Adjusting for different numbers of working days, GDP grew 4.9% in the year to 1Q11, up from 3.8% in 4Q10 and 2.4% in 1Q10.  Analysts were projected quarter-on-quarter German growth of 0.9%.
• French GDP growth of 1.0% was the best result since 2Q06 and also exceeded expectations of a 0.6% advance.  GDP rose 2.2% on year, 0.4 percentage points more than anticipated. Investment jumped 1.9% on quarter, and personal consumption rose 0.6%.  Exports went up 1.4%, but net foreign demand exerted a 0.4 percentage point drag.
• Dutch GDP climbed 0.9%, most since 4Q07, and 3.2% on year.  Analysts were predicting a 0.7% quarterly rise.
• Greek GDP rose 0.8%, the first advance since the final quarter of 2009, but was still 4.8% weaker than a year earlier.
• Spanish GDP firmed 0.3%, beating forecasts by 0.1 percentage point, and 0.8% from 1Q10.
• Belgian GDP growth matched France’s 1.0% pace.  The on-year increase of 3.0% was stronger than that of 2.1% in the year to 4Q10.
• Austrian GDP also went up 1.0% on quarter and was 4.0% greater than in 1Q10.
• Finland, like Spain, had quarterly growth of just 0.3%, but the Nordic member’s on-year GDP advance was 5.2% after 5.0% in the fourth quarter of 2010.
• Italian GDP edged just 0.1% higher, falling short of a 0.3% forecast.  On-year growth in Italy slowed from 1.5% in 1Q10 to 1.0% last quarter.
• It’s now official that Portugal has relapsed into recession, and GDP there fell 0.7% last quarter after dropping 0.6% in 4Q10.  On-year growth of minus 0.7% was negative for the first time since 4Q09 and compared to a 1.7% advance in the year to 1Q10.
• Czech GDP advanced 0.6% last quarter and by 2.5% from a year earlier.
• Hungarian GDP went up 0.7% in 1Q11 and by 2.4% compared to a year earlier.
• Romanian GDP rose 0.6% last quarter, reversing a drop in 4Q10.
• Hong Kong GDP jumped 2.8% last quarter and by a much greater than expected 7.2% on year, accelerating from a 6.4% rise in the year to 4Q10.

Late yesterday came word of central bank interest rate hikes of 50 basis points in Chile to 5.0% and 25 basis points to 4.25% in Peru.

But the Bank of Korea overnight surprised pundits by not changing its 3.0% key interest rate.  With inflation above target, analysts were looking for a 25-bp tightening.

China’s leading and coincident economic indices rose in March by 1.0% and 1.6%, respectively.

Singaporean retail sales rebounded from a 3.0% drop in February with a greater-than-forecast 4.3% increase in March.

The Swiss producer/import price index firmed 0.3% in April and was merely 0.1% higher than a year earlier.  Domestic producer prices were 0.5% lower than in April 2010, signaling a real lack of inflationary pressure in the pipeline.

Finnish consumer prices rose 0.2% in April and 3.2% on year.  Finnish retail sales were 3.9% higher than a year earlier in March, and its current account deficit narrowed 27% on month to EUR 336 million.

The Dutch trade surplus of EUR 3.46 billion in March was EUR 800 million smaller than a year earlier as a 17% advance of imports exceeded a 13% rise in exports.  Dutch retail sales increased 1.2% in March. French wages went up 1.0% last quarter, faster than had been anticipated.

The EU revised its forecasts for Euroland CPI inflation in 2011 and 2012 upward to 2.6% and 1.8%.  Nowotny of the ECB complained that Greece has not met all the austerity terms of its bailout package.  Earlier this week, workers took to the streets in Greece to protest fiscal cutbacks.

Scheduled U.S. data today feature consumer prices, the National Association of Home Builders index, and the U. Michigan index of consumer sentiment.  Canada releases auto sales figures, and Poland reports on consumer price inflation.  It’s Friday the 13th.  Be careful out there.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.

Tags: Euroland GDP

ShareThis

This entry was posted on Friday, May 13th, 2011 at 5:46 am and is filed under New Overnight Developments Abroad - Daily Update. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.