Greenback Gains on Widening Yield Advantage

* The dollar traded mostly higher on Wednesday. Treasuries dropped, pushing 10-year yields near 4.0%, the highest rate since November, after a poor bond auction, supply worries and comments from Russia’s central bank that it may cut investments in the US. The Federal Reserve’s Beige Book indicated economic conditions remained weak but saw some moderation and stabilization of the US economy. The S&P 500 declined 3.28 points to 939.15. The yen fell as interest rate spreads widened. Sterling rose on better-than-expected UK manufacturing data. The Canadian dollar fell despite crude oil at a 7-month high as Canada unexpectedly posted a trade deficit. The Australian dollar rose modestly as Australia’s consumer sentiment climbed by the most in 22 years.

* The EUR/USD was pressured by the US widening yield advantage and Eastern European financial turmoil. ECB’s Axel Weber said central banks may have to raise interest rates before inflation risks materialize. The pair has broken its uptrend that started in April. There is also a potential head-and-shoulder top with neckline in the 1.38 area. If this neckline support is broken, the pair may fall as low as 1.33. We have a stop at 1.3750.



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Financial and Economic News and Comments

US & Canada

* The US trade deficit in goods and services widened for a second month in April, increasing 2.2% to $29.16 billion, in line with expectation, as exports fell and oil imports increased, following a revised $28.53 billion in March, figures from the Commerce Department showed. Exports fell 2.3% to $121.11 billion in April, the lowest since July 2006, reflecting reduced foreign demand for engines, machinery and metals, from $123.93 billion in March. Imports declined 1.4% to $150.28 billion, the fewest since September 2004, from March’s $152.46 billion.

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* Canada’s trade balance showed an unexpected trade deficit of C$179 million ($163 million) in April amid falling exports, after a revised C$1.0 billion trade surplus in March, according to data from Statistics Canada. Exports fell 5.1% to C$30.8 billion in April, led by decreasing exports of energy products such as natural gas. Imports were down 1.5% to C$31.0 billion on declines in industrial goods and materials.

* Canada’s new housing prices fell a slightly more-than-expected 0.6% m/m in April after a 0.5% m/m decline in March, data from Statistics Canada showed.

Europe

* Germany’s EU harmonized CPI was upwardly revised to 0.0% y/y in May, the lowest inflation reading since harmonized data began in 1996, following a 0.8% y/y increase in April, final May data from the Federal Statistical Office showed.

* The UK trade deficit widened to ₤7.0 billion in April from ₤6.5 billion in March as exports rose 0.6% m/m and imports rose 2.6% m/m, the Office for National Statistics (ONS) said.

* UK manufacturing production was up for a second month in April, increasing a slightly more-than-expected 0.2% m/m, the same rate as in March, data from the ONS showed. April manufacturing production fell 12.7% y/y. Industrial production unexpectedly increased 0.3% m/m in April after a 0.6% m/m decline in March. April industrial production fell 12.3% y/y.

Asia-Pacific

* Japan’s domestic corporate goods prices fell for a ninth consecutive month in May, falling a slightly more-thanexpected 0.4% m/m, after April’s downwardly revised 0.6% m/m decrease, according to data from the Bank of Japan. May corporate goods prices fell a more-than-expected 5.4% y/y, the largest year-on-year decline since March 1987, following April’s downwardly revised 4.0% y/y fall.

* Japan’s core machinery orders fell a more-than-expected 5.4% m/m to ¥688.8 billion ($7.1 billion) in April, the lowest since 1987, after a 1.3% m/m decline in March, figures from the Cabinet Office showed. April core machinery orders plunged a more-than-estimated 32.8% y/y, following March’s 22.2% y/y drop.

* The Westpac–Melbourne Institute consumer sentiment index climbed 12.7% in June to 100.1, above 100 for the first time since January 2008, after declining 4.3% to 88.8 in May, according to the latest consumer sentiment survey by the Melbourne Institute and Westpac Banking Corporation, indicating Australia’s consumer confidence rose by the most in 22 years as the Australian economy escaped a recession. The current conditions index increased only 2.2% compared with 20.7% for the expectations index, while the measure for economic conditions over the next 12 months jumped 37.0%, the survey showed.

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* Australia’s home-loan approvals rose for a seventh consecutive month in April, increasing 0.9% m/m to 60,395, after a downwardly revised 4.8% m/m advance in March, according to data from the Australian Bureau of Statistics. April investment lending increased 8.9% m/m and the value of loans rose 1.9% m/m.

* China’s consumer prices fell for a fourth consecutive month in May, falling 1.4% y/y, after April’s 1.5% y/y decline, the Statistics Bureau said. Producer prices decreased 7.2% y/y in May, the most on record.

* The Reserve Bank of New Zealand kept its official cash rate unchanged at a record-low 2.50%, as forecast.

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Source: Hans Nilsson

10.06.2009