Yen Falls as Yield Spreads Widen

* The dollar traded mixed on Thursday, sharply higher against the yen but lower versus the euro and commodity currencies, reversing most of yesterday’s move as US bond yields fell and equities rose. Today’s economic figures were mostly supportive of a global economic recovery and risk-taking. The S&P 500 rose 13.77 to 906.83. US initial jobless claims fell and durable goods orders rose, indicating the worst of the US recession is behind us. The euro rose on improving business sentiment. Sterling fell on weaker-than-expected CBI retail sales trends and comments by BOE’s David Blanchflower that he doubted whether the UK economy would grow this year or next. The Australian and Canadian dollars gained as commodity prices rose and risk appetite increased.

* The USD/JPY surged on carry-trade demand as Japanese investors searched for higher yields abroad and Japanese retail sales rose for the first time in eight months. The Ministry of Finance said Japanese investors boosted purchases of foreign assets last week to the most in a month. Interest spreads have risen dramatically lately; consequentially, renewing interest in carry trades and supporting the USD/JPY. The pair found support at the neckline and surged to the 200-day moving average resistance. There are resistances in the 97 and 99 areas. If these are broken, the uptrend will resume.



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Financial and Economic News and Comments

US & Canada

* US durable goods orders rose a more-than-expected 1.9% m/m to a seasonally adjusted $161.45 billion in April after a downwardly revised 2.1% m/m decline in March, data from the Commerce Department showed. April durable goods orders dropped 26.6% y/y. Excluding transportation, durable goods orders unexpectedly increased 0.8% m/m in April after a downwardly revised 2.7% m/m decrease in March. A key barometer of business equipment spending -- orders for non-defense capital goods excluding aircraft -- decreased 1.5% m/m in April after a downwardly revised 1.4% m/m decline in March. Shipments for nondefense capital goods excluding aircraft, used in calculating GDP, fell 2.1% m/m, following March’s 1.7% m/m decline. In essence, the April increase in durable goods orders was the strongest since late 2007 and orders have been hovering in the same range since the beginning of the year, signaling a US economic recovery is in sight.

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* US initial jobless claims fell 13,000 to a lower-than-expected 623,000 in the week ending May 23, after the previous week’s upward revision to 636,000, according to data from the Labor Department. The 4-week average of new jobless claims declined 3,000 to 626,750. Continuing claims in the week ending May 16 rose 110,000 to a record 6,788,000, following the preceding week’s upward revision to 6,678,000. The insured unemployment rate increased to 5.1%, the highest level since December 1982, from 5.0%. Given initial jobless claims trending downward and continuing claims lagging new jobless claims, payroll losses will likely get smaller over the next several months.

* US new home sales increased a less-than-expected 0.3% to a seasonally adjusted 352,000 annual rate in April, after a downwardly revised 3.0% decline to a 351,000 annual rate in March, figures from the Commerce Department showed. New home sales fell 34.0% y/y. There were estimated 297,000 homes for sale at the end of April, down from 310,000 for sale at the end of March. At the current sales pace, the supply of unsold new homes declined to 10.1 months in April from 10.6 in March. The decline in the month’s supply was due to a continued decline in the inventory of unsold new homes. Inventories fell to 297,000 in April, down 48.1% from the peak in mid-2006, and the lowest since 2001. The median price of a new home was $209,700 in April, down 14.9% y/y. The average price was $254,000, down 19.2% y/y. Sales were up in the South, unchanged in the Northeast and Midwest, and down in the West.

* The US delinquency rate climbed to a seasonally adjusted 9.12% in Q1 2009 and the share of loans entering foreclosure rose to 1.37%, both the highest on records since 1972, the Mortgage Bankers Association reported.

Europe

* Eurozone business climate continued to recover from historical lows, with the eurozone business climate indicator improving to -3.17 in May from an upwardly revised -3.26 in April, the European Commission said. Confidence in the eurozone economic outlook climbed to a 6-month high in May, with the economic confidence index rising more than expected to 69.3, the highest reading since November 2008, from April’s 67.2. Consumer price expectations fell for a seventh consecutive month in May, falling to the lowest since records began in 1990. The consumer confidence index held at -31 in May. The industrial confidence index increased to -34 from April’s -35. The services confidence index improved to -23 from -24.

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* The Bloomberg eurozone retail PMI declined to 47.1 in May from 48.4 in April, indicating eurozone retail sales contracted at a faster rate this month and showing contraction since June, Bloomberg LP and Markit Economics reported. The German retail PMI fell to 46.3 from April’s 48.9, indicating the pace of contraction accelerated in Germany.

* Germany’s seasonally adjusted unemployment was little changed in May as a result of statistical changes, increasing a much less-than-expected 1,000 to 3.46 million, after rising a downwardly revised 57,000, according to data from the Federal Labor Agency. The unemployment count was lowered by as much as 20,000 because of a law forcing the agency to change the way it counts the German unemployed. The seasonally adjusted unemployment rate unexpectedly declined to 8.2% in May from 8.3% in April.

* UK retail sales resumed their decline in May after an unexpected Easter holiday-related bounce in April, with retailers expecting a similar weak performance in June, according to the Confederation of British Industry’s latest Distributive Trades Survey. The survey’s retail sales balance fell to a weaker-than-expected -17 in May from 3 in April.

Asia-Pacific

* Japan’s seasonally adjusted retail sales increased a slightly more-than-expected 0.6% m/m in April, the first gain in eight months, after a 1.1% m/m decline in March, according to data from the Ministry of Economy, Trade and Industry. April retail sales fell a less-than-expected 2.9% y/y, an eighth consecutive year-on-year fall, after March’s upwardly revised 3.8% y/y decrease. Large retailers’ sales fell a slightly less-than-expected 6.7% y/y, following March’s 8.1% y/y drop.

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* The Conference Board Australian leading economic index advanced 0.4% in March after increasing 0.2% in February and the coincident index increased 0.2% after February’s 0.4% rise, pointing to an improving outlook for the Australian economy, the Conference Board reported.

* Australia’s private capital expenditure fell a more-than-anticipated 8.9% in Q1 2009 after an upwardly revised 7.3% rise in Q4 2008, according to data from the Australian Bureau of Statistics. Q1 construction work done declined a more-than-expected 3.7%, following Q4’s upwardly revised 2.3% increase.

FX Strategy Update



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Source: Hans Nilsson

28.05.2009