Dollar Closing Week on Back Foot as G8 Leaders Meet in France

May 27, 2011

The dollar fell overnight by 1.2% against the Swiss franc, 0.9% versus the euro, 0.7% against the kiwi, 0.5% relative to the Aussie dollar, 0.2% against both the yen and sterling and 0.1% versus the Canadian dollar.

Annual summer summits of the leaders of the major advanced economies used to be a huge event but have lost relevance and pageantry.  G8 officials in France put an upbeat spin on the sustainability of growth, but investors are concerned about the dangers of elevated commodity prices, Euroland’s debt problems, and Japan’s natural disasters.

Asian stocks were mostly up with the notable exception of Japan (down 0.4%) and China (off 0.5%).  Equities climbed 1.0% in Hong Kong and The Philippines, 1.2% in India, 0.5% in Australia, Malaysia, and Indonesia, and 0.4% in Singapore and South Korea.  The Paris Cac, British Ftse, and German Dax have traded up 1.1%, 0.9%and 0.5%.

Ten-year Treasury and German bund yields are barely above 3.0%,  Gilt yields aren’t much higher.  JGBs slid two basis points to 1.13%.

Oil and gold prices firmed 0.8% and 0.3% to $101.01 per barrel and $1528.60 per ounce.

Japanese core consumer prices rose 0.6% in the year to April, the first on-year increase in 26 months.  However, Economics Minister Yosano played down the significance of the development, stressing that it remains to be seen if positive inflation will be sustained and that in any case 0.6% remains low. 

Fitch placed Japan’s credit rating outlook on negative but signaled that a downgrade could be avoided with a tougher plan to cut the fiscal long-term debt.

Japanese total retail sales rebounded 4.1% on month in April after a near-8% plunge in March when the earthquake occurred.  Total sales were 4.8% lower than a year earlier nonetheless.  Large-store retail sales were 1.9% below their year-earlier level.

German CPI inflation ticked lower in May to 2.3% from 2.4% and were unchanged from April.  Lower energy costs was the key factor.

Euroland M3 growth slowed to a 12-month 2.0% rate of increase in April from 2.3% in May.  M3 in February-April was 2.1% higher than a year earlier.  Private loans and credit posted on-year advances of 2.6% and 2.2% in the latest month.

Euroland confidence measures for May were released.  Business sentiment softened to 105.5 form 106.2.  While consumer confidence improved 1.8 points to minus 9.8, industrial sentiment fell 1.7 points to 3.9.  A separate business climate index scored a 0.99, 0.21 lower than expected and 0.29 below the reading in March.

U.S. personal spending and income each climbed 0.4% in April.  Spending was a shade softer than expected.  Income met expectations.  The core personal spending price deflator was 1.0% higher than a year earlier, most in 7 months.

Swedish GDP increased 0.8% last quarter and 6.4% from 1Q10.  Finnish consumer confidence slid to 15.4 in May from 17.8 in April.  Business sentiment rose a point, however.  Danish unemployment of 5.8% in April was a tenth less than in March and below forecasts.  Retail sales in Spain posted a smaller 2.0% on-year drop in April than anticipated. Portuguese consumer confidence remained very depressed in May at minus 49.1 but not as much so as the April reading.  Greek PPI inflation decelerated to 8.2% last month from 8.7% in March.

The British Nationwide house price index rose 0.3% in May but was still 1.2% below the year-earlier level.  British consumer confidence rose ten points unexpectedly in May to minus 21.  Irish retail sales fell 0.8% on month and 3.9% on year in April. 

Switzerland’s index of leading economic indicators remained strong at 2.30 this month after 2.29 in April.  The Swiss economy has been resilient in the face of relentless upward pressure on the franc from safe-haven inflows.

Singapore producer price inflation fell to 7.8% last month from 8.8% in March.

Still to come are U.S. pending home sales and the U. Michigan final monthly measure of consumer sentiment.  Also due this Friday is the Bank of Mexico’s interest rate decision.l

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

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