Euro Plunges as S&P Cuts Greece’s Credit Rating to Junk

* The dollar and yen rose on Tuesday while global stocks and US interest rates fell. S&P cut Greece’s credit rating to BB+ from BBB+ and Portugal’s rating to A- from A+. The downgrade ratings increased fears about contagion and a Greek debt default. US economic data were mixed; year-on-year house prices increased less than expected while consumer confidence rose more than anticipated. The S&P 500 index dropped 28.34 to 1,183.71. Grilling by US lawmakers of Goldman Sachs executives about their roles in the US mortgage debacle weighted on equities although Goldman’s own stock rose. The euro was pressured as a surge in Greece and debt-laden countries’ interest rates made it more difficult to finance their huge budget deficits. Sterling fell as data showed UK mortgages increased less than expected. The Australian and Canadian dollars depreciated as commodity prices dropped and risk aversion rose. The Federal Open Market Committee is expected to maintain the fed funds target rate at a range of zero to 0.25%.
* The USD/JPY fell as investors sold risky assets on fears the Greek sovereign-debt crisis could spread and worries that China may further tighten its monetary stance. The pair failed to break the 94-area resistance for a second time; thus, likely consolidating further. The long-term technical outlook remains positive. There are strong support in the 91-area and resistances the 94-area.

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Financial and Economic News and Comments

US & Canada

* The S&P/Case-Shiller 20-city composite home price index slipped a seasonally adjusted 0.1% m/m in February, in line with forecast, after a 0.3% m/m increase in January, indicating US home prices in 20 US cities declined for the first time in nine months, S&P/Case-Shiller housing data showed. The index was up a less-than-expected 0.6% y/y, the first increase since December 2006, following January’s 0.7% y/y decrease.

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* The Conference Board US consumer confidence index climbed to a higher-than-expected 57.9 in April from a downwardly revise 52.3 in March, suggesting US consumer confidence rose to the highest level since September 2008 amid better labor-market prospects, a Conference Board report showed, compared with April 2009’s 40.8 level. The present situation index improved to 28.6 in April, the highest level since May 2009, from a downwardly revised 25.2 the prior month. The expectations index climbed to 77.4 from March’s upwardly revised 70.4.

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* The Richmond Fed manufacturing index jumped to a higher-than-anticipated 30 in April from 6 in March, indicating manufacturing activity in the central Atlantic region expanded for a third consecutive month at a solid pace, according to the latest survey released by the Federal Reserve Bank of Richmond. New orders expanded for a fourth consecutive month in April, with the new orders index rising to 41 from March’s 10. The shipments index climbed to 30 in April from 5 in March. Employment expanded in April for the first time since October 2009, with the employment index advancing to 13 from 0.

Europe

* The GfK German consumer sentiment index will increase to 3.8 in May from an upwardly revised 3.4 in April, suggesting Germany’s consumer confidence has improved further in Spring 2010, according to a GfK Group report. Economic expectations improved remarkably, with the economic expectations index jumping to 22.5 in April from 4.5 in March. The income expectations index rose to 35.2, the highest reading for almost nine years, from March’s 13.5. The index of consumer propensity to buy slipped to 21.6 in April from 23.4 a month earlier, continuing its slight downward trend.

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* Germany’s import prices grew a more-than-expected 1.7% m/m in March, a sixth straight month-on-month advance, after a 1.0% m/m increase in February, data from the Federal Statistical Office showed. Import prices rose 5.0% y/y, a third consecutive year-on-year rise, following February’s 2.6% y/y advance. Meanwhile, export prices were up 0.8% m/m in March, a fifth consecutive month-on-month increase, and rose 2.0% y/y.
* The number of UK loans for house purchase increased to a lower-than-expected 34,905 in March from a downwardly revised 33,360 in February, according to figures from the British Bankers’ Association. Net mortgage lending in March rose by £2.4 billion ($3.7 billion), below February’s £2.7 billion and the £2.9 billion 6-month average.
* The UK retail sales balance held at 13% in April, indicating UK retail sales grew for a third consecutive month, according to the latest monthly distributive trades survey by the Confederation of British Industry. The expectations index is expected to increase to 17 in May, a 5-month high, from 14 in April.

Asia-Pacific

* Australia’s producer prices increased a more-than-expected 1.0% q/q in Q1 2010, the most in more than a year, after a 0.4% q/q decline in Q4 2009, PPI data from the Bureau of Statistics showed. The Q1 PPI slipped 0.1% y/y, following Q4’s 1.5% y/y decrease.

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* The NAB Australian business confidence index declined slightly to 17 in Q1 2010 from 18 in Q4 2009, National Australia Bank reported.

Source: Hans Nilsson

27.04.2010