Greenback and Yen Gain as Risk Aversion Returns

* The dollar and yen rose on Wednesday as disappointing global economic data dented hopes that the world economy had stopped its decline. US retail sales unexpectedly fell; eurozone industrial production posted a record year-on-year drop; and the Bank of England reduced its growth and inflation projections. The S&P 500 fell 24.43 points to 883.92, the third consecutive fall and its longest streak of declines since the beginning of the stock-market rally in early-March. The yen advanced on rising Japanese economic sentiment and reports that the Japanese opposition would stop buying US government bonds if elected. The risk-sensitive currencies fell. Sterling declined as the BOE said a UK economic recovery will not happen until 2010. The commodity currencies dropped as risk appetite declined and commodity prices fell on lower-than-expected Chinese industrial production.

* After touching its highest level since March 23, the EUR/USD made a double bottom, broke its long-term downtrend and failed to break the 1.37-area resistance. Still above the 200-day moving average, the EUR/USD remains in an uptrend with support in the 1.34 area and resistance in the 1.37. If the S&P 500 breaks the 870-area support, the EUR/USD outlook may turn bearish.



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Financial and Economic News and Comments

US & Canada

* US retail sales unexpectedly declined 0.4% m/m in April after a downwardly revised 1.3% m/m slide in March, figures from the Commerce Department showed. Retail sales advanced in January and February after falling six consecutive months. Retail sales excluding autos in April unexpectedly fell 0.5% m/m, following March’s downwardly revised 1.2% m/m decline. Retail sales fell 9.4% y/y and fell 6.6% y/y excluding autos. The decline in April retail sales was not widespread. Several key categories of sales rose, including motor vehicles, building materials, health/personal stores, sporting goods, and restaurants/bars. The drop in sales was concentrated in only two sectors: gas stations and grocery stores. The overall April decline was partly related to problems with seasonal adjustments. January and February retail sales were probably not as strong as reported, while March and April sales were likely not as weak.

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* US import prices rose a more-than-expected 1.6% m/m in April, the largest rise since June 2008, following March’s downwardly revised 0.2% m/m increase, according to figures from the Labor Department. Import prices fell 16.3% y/y, the largest one-year decline since records began in 1982, following March’s downwardly revised 15.3% y/y drop. Excluding petroleum, import prices declined 0.4% m/m in April, and declined 5.6% y/y, the biggest decrease on record. Meanwhile, US export prices increased 0.5% m/m in April, but declined 6.8% y/y. The month-on-month increases in both import and export prices signal the velocity of money continues to revive.

* US business inventories declined a slightly less-than-estimated 1.0% m/m in March to a seasonally adjusted $1.401 trillion, after February’s downwardly revised 1.4% m/m decrease, data from the Commerce Department showed. Business sales fell 1.6% m/m to a level of $971.7 billion in March after being flat in February. The inventory-to-sales ratio held steady in March, remaining at February’s upwardly revised 1.44. Business inventories declined 4.8% y/y in March; business sales plunged 15.6% y/y.

* The Bloomberg professional global confidence index rose to 38.72 in May from 21.2 in April, indicating confidence in the global economy improved to the highest level since November 2007, Bloomberg reported. As the reading is below 50, it indicates pessimists still outnumber optimists.

Europe

* Eurozone industrial production declined a more-than-expected 2.0% m/m in March after a downwardly revised 2.5% m/m decrease in February, data released by Eurostat showed. Industrial production dropped a recordlow 20.2% y/y, deepening February’s downwardly revised 19.1% y/y fall. The data reinforces a weakening eurozone economic outlook.

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* According to the Bank of England May 2009 inflation report, UK GDP will contract on an annual basis for the rest of this year before resuming growth in 2010. Inflation will slow to as low as 0.4% this year and likely stay below its target for the next three years, the BOE predicted. “The risks are weighted toward a relatively slow and protracted recovery,” BOE Governor Mervyn King said.

Asia-Pacific

* Japan’s current-account surplus narrowed at the slowest pace in six months in March, shrinking 48.8% y/y to ¥1.486 trillion ($15.5 billion), the Ministry of Finance said. Exports dropped 46.5% y/y in March, easing the decline from a record 50.4% y/y plunge in February. Imports fell 37.8% y/y, following February’s unprecedented 44.9% y/y drop.

* The Japanese current conditions index rose more than expected to 34.2 in April from 28.4 in March, indicating Japan’s merchant confidence climbed to a 12-month high, according to the Cabinet Office’s economy watchers survey. The future conditions index rose to 39.7 from March’s 35.8.

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* China’s industrial production increased 7.3% y/y in April after an 8.3% y/y rise in March and retail sales climbed 14.8% y/y after March’s 14.7% y/y gain, the Statistics Bureau said.

FX Strategy Update



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Источник: Hans Nilsson

13.05.2009