Euro Trading Back Above $1.4000 But Greek Problem Persists

May 24, 2011

The euro, which touched a low of $1.3969 on Monday, recovered to $1.4108, 0.4% stronger than Monday’s close.  The dollar is also down overnight by 1.0% against the kiwi, 0.6% versus the Aussie dollar, 0.4% relative to the Swiss franc, 0.3% against the yen and sterling, and 0.1% versus the Chinese yuan.

Stocks have stabilized at least temporarily.  Equities in the Pacific Rim rebounded 1.0% in Thailand, 0.7% in Pakistan, 0.3% in South Korea, 0.2% in Japan, Malaysia, New Zealand and Indonesia, and 0.1% in India, China and Hong Kong.  The German Dax, British Ftse, and Paris Cac show gains so far of 0.6%, 0.3%, and 0.2% in European trading.

The yields on 10-year German bunds and British gilts each went up four basis points, while the 10-year JGB yield is steady.

Oil and gold prices have rallied further, gaining 1.3% and 0.5% to $98.95 per barrel and $1522.90 per troy ounce.

Greece’s finance minister warned of a possible default if the next tranche of the EU/IMF aid is not forthcoming. 

Moody’s put the debt ratings of fourteen British banks on credit watch for a possible downgrade.

Euro area industrial orders sank 1.8% in March, trimming the 12-month increase to 14.1% from 21.5% in the year to February.  Orders tumbled by 13.0% in Ireland, 8.4% in Portugal, 4.0% in Greece and even 3.4% in Germany.  The setback in March followed several months of rapid expansion that saw orders for the first quarter as a whole go up 3.4% (14.2% at an annualized rate). 

French business sentiment dropped two points in May to 107 from a downwardly revised April reading of 109.

The German IFO Institute released its business climate index, which had an unchanged reading of 114.2 in May as current conditions rose 0.4 to 121.4 while expectations dipped to 107.4 from 107.7 in April, 109.2 in March and 110.8 in February.  A bright spot was retailing, which recovered to 15.2 after dropping to 9.6 in April from 13.5 in March.  The IFO index is consistent with the widespread view that Germany will continue to expand, albeit not as explosively as in the first quarter.  A sister services index from the IFO Institute settled back to 27.4 in May from 28.9 in April but surpassed readings of 24.9 at end-2010 and 15.0 in May 2010.

Revised and more detailed data confirmed that German GDP grew 1.5% last quarter (a sizzling annualized rate of 6.1%) and by 5.2% from 1Q10.  Even after accounting for variations in the number of working days, GDP went up 4.9% on year.

Germany’s index of leading economic indicators was flat in March after advancing 0.7% in February.  The index of coincident indicators dipped 0.1%.

British public financial data for April were released.  The public sector net cash requirement was GBP 3.26 billion, down from GBP 25.3 billion in the prior month.  Public sector net borrowing totaled GBP 7.71 billion including interventions, up from GBP 5.3 billion a year earlier.  There was a budget deficit in April of GBP 8.4 billion versus GBP 5.6 billion in April 2010, and cumulative debt amounted to 60.1% of GDP, up from 52.8% a year earlier.

The monthly CBI survey of British retailer conditions found continuing subdued sales with high price inflation in May.

Irish producer prices fell by 0.7% on month and 0.8% on year in April.  Norwegian GDP advanced 0.6% on quarter and by 1.0% on year in 1Q.  Czech business sentiment edged up a tenth to 93.2 in May, while consumer confidence softened 2.6 points to 81.3.  Retail sales in Hungary rose 0.5% on month but fell by 0.9% on year during March.  Finland’s jobless rate fell more sharply than anticipated to 8.2% in April.

Expected inflation in New Zealand firmed to 3.0% from 2.6% last quarter, but that country’s finance minister said that interest rates would remain low for longer than such do in Australia.

No change was made in the Japanese government’s monthly assessment of the economy, which continues to state the the recent earthquake has caused overall weakness and a difficult situation is particular areas.  Economics Minister Yosano revised projected GDP this fiscal year down further to 0.6-0.7% but is looking for an improved 2.3% growth rate in the year starting April 2012.

U.S. new home sales, the Richmond Fed manufacturing index, and weekly chain store data get released later today.  Hoenig, Plosser, and Bullard of the Fed have speaking engagements today as well.

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

Tags: , ,


Comments are closed.