Softer Euro

May 23, 2014

Germany’s IFO Institute reported an unexpected drop in its proprietary German business climate index to a five-month low, claiming that “a lull was seen in the German economy in May.”  The overall index fell to 110.4 from 111.2 in April.  Current conditions dropped 0.5 points, while expectations fell back 1.1 points.  Manufacturing, construction, wholesaling and retail each posted lower values in May than April.  The sister services climate index of IFO also weakened in May, printing at a 2-month low of 21.4 after 22.1 in April.

Reports of strong support for right-wing anti-Europe parties in on-going elections for the EU Parliament also weighed on sentiment toward the euro, which is 0.3% softer against the dollar and near its overnight low of $1.3616.  The U.S. currency has also advanced by 0.3% against the Swiss franc, 0.2% versus the kiwi and yen, and 0.1% relative to the loonie and sterling.

A smaller-than-expected 1.2% rebound in Swedish consumer confidence after four straight declines sent the krona to a six-month low.

Investors await the result of Ukraine elections on SundayEU parliamentary elections wrap up on Saturday

U.S. and British markets will be closed on Monday for Memorial Day and a spring bank holiday, respectively.  The U.S. Treasury market will close early today ahead of the holiday.

In the Pacific Rim, stocks advanced by 1.1% in India, 0.9% in Japan, 0.8% in China, 0.4% in New Zealand, Singapore and Taiwan, and 0.2% in Australia.  In Europe, equities are up 0.6% in Italy, 0.2% in Germany and 0.1% in France but down 0.3% in Britain and 0.1% in Switzerland.  In Spain, whose S&P credit rating was raised by a single level to BBB, the 10-year yields dropped seven basis points, but share prices are unchanged.  Fitch lifted Greece’s rating to B with a stable outlook from B-.

The ten-year German bund and British gilt yields are steady.  The 10-year Japanese JGB is a basis point firmer but still just below 0.60%.

Commodities, including a 3-month high in aluminum, are firmer.  Gold and oil have edged up 0.2% and 0.1% to $1,292.20 per ounce and $103.85 per barrel.

The second release of German 1Q14 GDP data confirmed growth of 3.3% annualized from 4Q13 and 2.3% on-year from 1Q13.  Growth last quarter was led by non-annualized advances of 3.6% in construction, 3.3% in business spending on machinery and equipment, and 0.7% in persona consumption, each of which surpassed expectations.  However, net foreign demand exerted a disappointing 0.9 percentage point drag on GDP growth as exports edged up just 0.2% and imports advanced 2.2%.  Inventories boosted first-quarter growth by half a percentage point.

Italian retail sales fell unexpectedly in March, dropping 0.2% on month after stagnating in February.  Sales in the first quarter fell 1.8% on year.  Italian wages posted a 1.2% 12-month increase in April.  Austrian industrial production sank 1.8% in March and recorded only a 0.8% increase from a year earlier.

The Conference Board released April indices of leading and coincident economic indicators for China and Germany.

  • China’s LEI went up 0.9% in April following a 1.1% rise in March, while the coincident index improved 0.4%, down from a March increase of 1.3%.
  • Germany’s LEI increased 0.3%, only half as much as it had in March, and the index of coincident economic indicators rose just 0.1% after 0.3% the month before.

Consumer confidence in New Zealand slumped 4.4% in May and was 6% lower than January’s seven-year peak.

Consumer prices in Singapore dipped 0.2% last month, but the 12-month pace accelerated sharply to 2.5%.

U.S. existing home sales, reported yesterday, posted their first monthly rise of 2014 in April.  Today’s holiday-shortened session sees the release of U.S. new home salesCanada will be releasing consumer prices.  Mexican GDP and the Brazilian current account get reported as well today.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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