Euro Recovers from 14-Month Low

* The dollar and yen fell on Friday while the euro rose amid speculation Europe may take more forceful action to ease the region’s sovereign debt crisis. US employment grew more than anticipated and consumer credit unexpectedly rose. In a whipsaw session, the S&P 500 fell 17.27 to 1,110.88. Not only has PIIGS countries’ borrowing cost surged but the interbank lending rates are also rising as banks are afraid to lend to each other. The G-7 held an emergency conference call to discuss the Greek debt crisis. The upper house of the German parliament approved a German aid bill for Greece. Sterling rose modestly. The Conservative Party won the election but failed to win the overall majority. The Australian dollar was up slightly. The Reserve Bank of Australia monetary report indicated a pause in rate hikes. The Canadian dollar was supported by strong Canadian job gains.

* The USD/JPY rose following yesterday’s wild swings in the foreign exchange and stock markets. There was still no answer to what may have caused yesterday’s fluctuation in the US stock market. We believe it may have been related to the USD/JPY drop from 94 to 88 before recovering. The Bank of Japan said it will pump ¥2 trillion ($21.7 billion) into the financial system “to raise the sense of security in the market by providing ample funds.” Yesterday the USD/JPY broke its short-term uptrend and plunged to the 88-area support before rising to 90. Today the pair traded between 90 and 93. Support is in the 90 area from the uptrend that goes back to December. The pair will continue to trade in tandem with stocks, but the longer term outlook is up.

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Financial and Economic News and Comments

US & Canada

* US nonfarm payrolls rose a more-than-expected 290,000 in April, the largest gain in four years, after an upwardly revised 230,000 advance in March, figures from the Labor Department showed, suggesting the US employment situation has been improving amid sustainable US economic growth. Private-sector payroll gains were widespread in April, led by leisure/hospitality (+45,000), manufacturing (+44,000), education/health (+35,000), and services to buildings/homes (+23,000). Construction (+14,000) added jobs for a second consecutive month. The weakest category was couriers/messengers (-21,000). The unemployment rate rose to 9.9% in April from 9.7% in March. Incomes were little changed. Average hourly earnings increased to $22.47 in April from $22.46 in March. Average hourly earnings rose 1.6% y/y. Average weekly hours increased to 34.1 in April, the highest since January 2009, from 34.0 the prior month.

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* US consumer credit unexpectedly rose $2.0 billion in March, or 1.0% at an annual rate, registering the second rise in three months, to $2.451 trillion, after a revised $6.2 billion February decline that was smaller than previously reported, according to figures released by the Federal Reserve.

* Canada’s employment jumped a more-than-anticipated 108,700 in April, the seventh gain in nine months and the most in percentage terms since August 2002, to 17,071,900, after a 17,900 rise in March, data from Statistics Canada showed. The unemployment rate declined to 8.1% from March’s 8.2%. Full-time employment rose 43,800 to 13,768,400 in April and part-time positions grew 64,800 to 3,303,500. The participation rate increased to 67.2 from March’s 67.0. Average hourly wage growth eased to 2.0% y/y in April from 2.2% y/y the prior month.

Europe

* Germany’s seasonally adjusted industrial production grew a more-than-expected 4.0% m/m in March after a downwardly revised 0.2% m/m decline in February, according to IP data from the Federal Ministry of Economics and Technology. March IP rose 8.6% y/y nsa wda, a third consecutive year-on-year gain, following a downwardly revised 5.5% y/y February increase.

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* PPI output rose a more-than-expected 1.4% m/m in April, a 14th straight monthly rise and the most since May 2008, after a 0.9% m/m advance in March, reflecting price increases in other manufactured items, petroleum products, and tobacco and alcohol products, according to PPI data from the Office for National Statistics. April PPI output climbed 5.7% y/y, the highest annual pace since October 2008, following a 5.0% y/y March rise. Core PPI output climbed 1.1% m/m in April after an upwardly revised 0.8% m/m advance the prior month. April core PPI output grew 4.4% y/y, following an upwardly revised 3.7% y/y March rise. PPI input increased a lessthan- expected 0.6% m/m in April, a seventh straight monthly gain but the least since December 2009, after an upwardly revised 3.8% m/m advance in March, reflecting price rises in crude oil and imported metals. April PPI input rose 13.1% y/y, a seventh consecutive year-on-year rise and the most since October 2008, following an upwardly revised 10.3% y/y March gain.

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* UK house prices unexpectedly slipped 0.1% m/m to £168,202 ($248,830) in April, the second decline in 10 months, after a downwardly revised 1.0% m/m increase in March, according to a Halifax report. April house prices rose 8.7% y/y, a sixth straight year-on-year rise. House prices climbed 6.6% y/y in the three months through April, a fifth consecutive gain and the largest since October 2007, following a 5.2% y/y advance in the three months through March.

* Switzerland’s seasonally adjusted unemployment rate declined to 4.0% in April from 4.1% in March and the non-seasonally adjusted unemployment rate declined to 4.0% from March’s 4.2%, according to data from the State Secretariat for Economic Affairs.

* Switzerland’s real retail sales rose a more-than-expected 4.5% y/y nsa in March after a downwardly revised 2.7% y/y increase in February, data from the Federal Statistical Office showed.

Asia-Pacific

* Japan’s monetary base rose 2.9% y/y in April after a 2.1% y/y increase in March, the Bank of Japan reported.

* The Australian Industry Group/Housing Industry Association performance of construction index increased to 55.8 in April from an upwardly revised 51.0 in March and a downwardly revised 48.3 in February, indicating Australia’s construction sector expanded for a second consecutive month, led by gains in activity, new orders and employment, according to an AiG/HIA report. The activity index rose to 57.5 in April from 51.8 the prior month, suggesting construction activity grew for a second successive month and at the highest level since December 2007. New orders expanded in April following declines in the prior two months, with the new orders index advancing to 53.1 from March’s 47.6. The employment index climbed to 56.8 in April from 51.0 in March, showing employment expanded for a second consecutive month and at the highest level since January 2006.

Source: Hans Nilsson

07.05.2010