Dollar Falls on Recovery Optimism

* The dollar and yen fell on Monday as risk aversion subsided on the news that the troubled lender CIT Group appeared to secure a $3 billion loan in a deal that should ward off bankruptcy. US stocks rose after Goldman Sachs raised its yearend S&P 500 target to 1060 from 940. The yen was little changed against the greenback but fell versus most other key currencies. The stronger-than-expected Conference Board US LEI for June added to investor optimism on a US economic recovery. Federal Reserve Bank of Atlanta President Dennis Lockhart said “the economy is stabilizing and recovery will begin in the second half.” The S&P 500 rose 10.75 points to 951.13, the highest level since November. The European currencies gained on improved risk sentiment. Germany’s producer prices unexpectedly fell and UK home prices rose for a fifth month this year. The Australian dollar advanced as stocks and commodity prices rose.

* The USD/CAD was pressured by growing appetite for risky assets. Foreign investment in Canadian securities climbed to a 5-year high in May. Crude prices rose above $64 a barrel, supported by optimism on a global economic recovery. Canada’s wholesale sales fell less than expected and the inventory-to-sales ratio declined for a second month. The Bank of Canada is expected to keep its key interest rate unchanged at 0.25%, abstain from implementing quantitative easing and upgrade its forecast for the Canadian economy. There are supports in the 1.10 and 1.08 areas and resistances in the 1.15 and 1.17.

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Financial and Economic News and Comments

US & Canada

* The US leading economic indicators index, measuring economic activity for the next 3-6 months, climbed for a third straight month in June, rising a more-than-expected 0.7%, after May’s upwardly revised 1.3% advance, LEI data released by the Conference Board showed, indicating the US recession is coming to an end. The coincident index, measuring current economic activity, declined 0.2%, following May’s 0.3% slide.

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* Canada’s wholesale sales declined a less-than-anticipated 0.3% m/m to C$40.1 billion ($36.3 billion) in May, an eighth consecutive monthly decrease and the lowest level since December 2005, after a downwardly revised 0.7% m/m decrease in April, according to figures from Statistics Canada. May wholesale sales fell 9.9% y/y. Wholesale inventories were down 0.8% m/m to $57.2 billion in May, a third consecutive monthly slide. The inventory-to-sales ratio declined to 1.43 from April’s 1.44.

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* Foreign investment in Canadian securities rose to a 5-year high of C$18.893 billion in May from C$9.048 billion in April, driven by new issues of Canadian corporate bonds, a separate report from Statistics Canada showed. Canadian investment in foreign securities totaled C$985 million in May, registering the first divestment in 2009.

Europe

* Germany’s producer prices unexpectedly declined 0.1% m/m in June, on falling energy costs and weakening demand, after being unchanged m/m in May, according to PPI data from the Federal Statistical Office. Energy costs fell 8.4% y/y in June. Excluding energy costs, producer prices were unchanged m/m in June but declined 2.8% y/y. The June PPI fell a more-than-expected 4.6% y/y, the largest drop since December 1968, after May’s 3.6% y/y decline.

* UK house prices were up 0.6% m/m to £227,864 ($372,000) in July, the fifth monthly price rise this year, after a 0.4% m/m slide in June, Rightmove Plc reported. House prices declined 3.1% y/y, following June’s 5.5% y/y drop.

Asia-Pacific

* Australia’s producer prices fell a more-than-expected 0.8% q/q in Q2 2009, the largest fall since records began in 1998, driven by decreasing import prices, following a 0.4% q/q decline in Q1, PPI data from the Australian Bureau of Statistics showed. Imported goods prices fell 5.9% q/q. The Q2 producer-price inflation rate decelerated to 2.1% y/y from Q1’s 4.0% y/y, indicating inflationary pressures are easing.

Source: Hans Nilsson

20.07.2009