Yen Rises on Falling Risk Sentiment

* The dollar traded mixed on Tuesday as the BRIC countries called for greater influence in international financial institutions and for a more diversified global monetary system. US and European prices showed no signs of serious inflation. US industrial production fell more than anticipated while the housing sector surprised to the upside. The S&P 500 fell 11.75 points to 911.97. The euro rose modestly on better-than-expected German investor sentiment. We took profits on our long EUR/USD position as it hit our stop overnight. Sterling gained as inflation rose more than expected. The Australian dollar fell modestly as the Reserve Bank of Australia sees a stabilizing Australian economy. The Canadian dollar was lower despite Canada’s rising labor productivity.

* The USD/JPY fell as risk aversion rose. The Bank of Japan maintained its key interest rate at 0.10% and remained cautious about the strength of the Japanese economy. After failing to penetrate the 99-area resistance, the pair broke the short-term uptrend today. Supports are in the 96- and 94-areas. If those are broken, the USD/JPY may fall to the 90 handle.

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Financial and Economic News and Comments

US & Canada

* US producer prices increased a less-than-expected 0.2% m/m in May after rising 0.3% m/m in April, according to PPI data from the Labor Department. The PPI fell 5.0% y/y, the largest decline since August 1949. The May month-on-month PPI increase could be attributed to a 2.9% m/m rise in energy. Food prices declined 1.6% m/m. The core PPI, which excludes food and energy, unexpectedly slid 0.1% m/m in May, the first decline since October 2006, but rose 3.0% y/y.

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* US housing starts jumped a more-than-anticipated 17.2% to a seasonally adjusted 532,000 annual rate in May, after a 12.9% drop to a downwardly revised 454,000 rate in April, data from the Commerce Department showed. Housing starts dropped 45.2% y/y. Most of the jump in May housing starts was due to a 61.7% rebound in multi-family units following April’s large drop. Single-family starts rose 7.5% to 401,000 in May after increasing 3.3% in April. Housing starts rose in every major region of the country. Meanwhile, building permits increased a more-than-expected 4.0% to a 518,000 annual rate in May after declining 2.5% to 498,000 in April. All of the increase was due to a 7.9% rise in single-family permits.

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* US industrial production declined a more-than-expected 1.1% m/m in May after a downwardly revised 0.7% m/m decline in April, data from the Federal Reserve showed. May IP fell 13.4% y/y. Capacity utilization declined to 68.3% from April’s downwardly revised 69.0%. May capacity utilization increased 0.1% y/y. Manufacturing production was down 1.0% m/m in May after a 0.6% m/m decline in April. Manufacturing capacity utilization declined to 65.0% from April’s 65.6%.

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# Canada’s labor productivity unexpectedly increased 0.3% q/q in Q1 2009 after an upwardly revised 0.1% q/q decline in Q4 2008, according to a report from Statistics Canada.

Europe

* Eurozone consumer-price inflation rate in May decelerated to 0.0% y/y, as forecast and the lowest level since records began in 1996, from 0.6% y/y in April, CPI data from Eurostat confirmed. May CPI was up 0.1% m/m after a 0.4% m/m increase in April. The core CPI rate slowed to 1.5% y/y from April’s 1.8% y/y.

* Eurozone labor costs rose a more-than-expected 3.7% y/y in Q1 2009 after an upwardly revised 4.0% y/y advance in Q4 2008, according to a separate report from Eurostat.

* Eurozone investor confidence improved for a eighth consecutive month in June, with the ZEW eurozone economic expectations index increasing more than expected to 42.7 from May’s 28.5, according to data from the ZEW Centre for European Economic Research. The current economic situation index increased to -90.7 from -93.2.

* Germany’s investor confidence rose for an eighth straight month to a 3-year high in June, with the ZEW German economic expectations index rising more than anticipated to 44.8, the highest reading since May 2006, from May’s 31.1, ZEW data showed. The current economic situation gauge increased more than expected to -89.7 from -92.8.

* UK consumer-price inflation rate was at 2.2% in May, higher than estimated, compared with 2.3% y/y in April, according to CPI figures from the Office for National Statistics. May CPI was up a more-than-expected 0.6% m/m after a 0.2% m/m increase in April. May core CPI rose 1.6% y/y. The retail price index declined a lessthan- expected 1.1% y/y in May after a 1.2% y/y decrease in April. May RPI excluding mortgage interest payments increased 1.6% y/y, following April’s 1.7% y/y rise.

* Switzerland’s industrial production dropped a more-than-expected 13.1% q/q in Q1 2009 after an upwardly revised 0.4% q/q increase in Q4 2008, data from the Swiss Federal Statistical Office showed. Q1 industrial production fell 9.5% y/y.

Asia-Pacific

* The Bank of Japan left its key interest rate unchanged at 0.10%, as forecast. “The Bank of Japan remains cautious about the strength of final demand once companies at home and overseas complete their inventory adjustments,” Bank of Japan Governor Masaaki Shirakawa said.

* The Reserve Bank of Australia didn’t see a need for further policy easing at its last monetary policy meeting, saying “board members did not see a pressing case for any further action at this meeting, though they viewed the inflation outlook as affording scope for some further easing of monetary policy, if that were to be needed to support demand at a later stage,” according to minutes of the June 2 RBA meeting released in Sydney today. The minutes read “maintaining the current stance of monetary policy for the time being would be consistent with fostering sustainable growth and low inflation, and would leave adequate flexibility to respond to developments as needed over the period ahead.”

Source: Hans Nilsson

16.06.2009