Yen and Dollar Gain on Renewed Worries


* The dollar and yen rose on Friday as risk appetite evaporated. Stocks, interest rates and commodity prices fell as investors sold riskier assets. US economic releases were mixed. Industrial production rose for a sixth straight month, consumer-price inflation increased modestly, and consumer expectations declined. The S&P 500 fell 12.43 to 1,136.03 from a 15-month high as JP Morgan’s raised questions about the banking-sector outlook. The yen rose, supported by increased risk aversion. The euro plunged on continuing worries about Greece and Portugal’s fiscal health. Unable to penetrate resistance from the 50-day moving average, sterling was down for the first day in six. Failing to penetrate resistance from the highest level in 2-3 months, the Australian and Canadian dollars fell as commodity prices declined.
* The dollar index lowered slightly for the week as Friday’s gain recouped most of the week’s earlier losses. The dollar fell earlier in the week on bets the Federal Reserve is unlikely to tighten its monetary stance anytime soon but gained on Friday on increased risk aversion. After breaking its sharp December uptrend, the dollar index is consolidating gains between support in the mid 76 area and resistance in the low 78 area. We believe the index is consolidating December’s gain and making a long-term bottom at these levels.

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Financial and Economic News and Comments

US & Canada

* US consumer prices increased as forecast 0.1% m/m in December after a 0.4% m/m advance in November, while the core CPI, which excludes food and energy costs, increased as expected 0.1% m/m following November’s 0.0% m/m, CPI data from the Labor Department showed, suggesting consumer-price inflation is well contained amid a soft economic recovery. Energy prices increased 0.2% m/m in December, moderating sharply from a 4.1% m/m November rise. Food prices grew 0.2% m/m last month following a 0.1% m/m November increase. The December CPI rose 2.7% y/y and the core CPI grew 1.8% y/y. Real average hourly earnings were unchanged m/m in December, down 1.3% y/y, a separate report from the Labor Department showed.

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* US industrial production increased as market expected 0.6% m/m in December, a sixth consecutive monthly gain, after a downwardly revised 0.6% m/m in November, according to IP data from the Federal Reserve. December IP declined 2.0% y/y. Capacity utilization grew to a higher-than-expected 72.0%, the highest level in a year, from November’s upwardly revised 71.5. Manufacturing production declined 0.1 m/m in December after a downwardly revised 0.9% m/m increase in November. Manufacturing capacity utilization increased to 68.6% from November’s upwardly revised 68.5.

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* The Reuters/University of Michigan preliminary consumer sentiment index grew to a lower-than-expected 72.8 in January from 72.5 in December, indicating US consumer confidence increased slightly from last month but improved impressively from a record 28-year low of 55.3 in November 2008, according to the latest Thomson Reuters/University of Michigan surveys of consumers. The current economic conditions index rose to 81.0 in January, the highest level since March 2008, from 78.0 in December. The consumer expectations index declined to 67.5 from December’s 68.9.

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* New York manufacturing activity expanded for a sixth straight month and at a faster pace in January, according to the latest Empire State Manufacturing Survey released by the Federal Reserve Bank of New York. The Empire State manufacturing index rose to a higher-than-expected 15.92 this month from an upwardly revised 4.50 in December. The new orders index jumped to 20.48 in January from 2.77 in December, while the shipments measure climbed to 21.07 from 8.38. The inventory index increased to -17.33 from -18.42, showing a slower pace of drawdown. The employment index grew to a positive 4.00 in January from -5.26 in December. The prices paid measure rose to 32.00 in January from 19.74 in December, while the prices received gauge advanced to 2.67 from -9.21. Expectations on economic activity in the New York region remained positive, with the index measuring the outlook six months from now increasing to 56.00 from 52.63.

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Europe

* The eurozone consumer-price inflation rate rose to 0.9% y/y in December, the highest since February 2009, from 0.5% y/y in November, Eurostat reported, confirming its January 5 flash CPI estimate. The monthly CPI was up 0.3% m/m in December after a 0.1% m/m increase the prior month. The core CPI rate increased to 1.1% y/y from November’s 1.0% y/y. The annual average rate of inflation declined to 0.3% in 2009 from 3.3% in 2008.

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* The eurozone seasonally adjusted trade surplus narrowed to a lower-than-expected ?3.9 billion ($5.6 billion) in November from a downwardly revised ?4.7 billion in October, according to figures from Eurostat. Seasonally adjusted exports fell for a second month in November, falling 0.4% m/m, after a 0.1% m/m October decline, while seasonally adjusted imports increased 0.3% m/m following a 1.0% m/m October decrease. In non-seasonally adjusted terms, the trade surplus narrowed to ?4.8 billion in November from a downwardly revised ?6.6 billion in October, compared with a ?7.0 billion deficit in November 2008.

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* German wholesale prices increased a less-than-expected 0.2% m/m in December, slower than a 0.7% m/m gain in November, according to data from the Federal Statistical Office. December wholesale prices increased 0.2% y/y, rebounding from a 3.2% y/y November decline. Wholesale prices fell 7.0% y/y on an annual average in 2009, the deepest year-on-year fall since 1986.
* Switzerland’s producer and import prices increased as forecast 0.1% m/m in December after 0.0% m/m in November, data from the Swiss Federal Statistical Office showed. Producer and import prices declined as expected 2.5% y/y, following November’s 3.3% y/y decrease. The 2009 price level fell 3.9% compared to the 2008 level.
* The Conference Board UK leading economic index, a measure of future economic activity, advanced 0.9% to 98.6 in November, an eight straight monthly gain, after increases of 1.1% in October and 1.0% in September, the Conference Board reported. All seven LEI components rose, signaling preferable prospects for a UK economic recovery.

Asia-Pacific

* China’s retail sales in real terms registered their largest gain since 1986, Commerce Ministry spokesman Yao Jian said, without disclosing the growth rate. Rural consumption rose approximately 15.5% y/y, outpacing urban spending for the first time, Yao said.

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Source: Hans Nilsson

15.01.2010