Dollar Plunges on US Economic Slowdown

The dollar dropped on Thursday as US industrial production, producer prices and manufacturing gauges all showed weaknesses. The S&P 500 rose 1.31 to 1,096.48, recovering from earlier losses as Goldman settled charges with SEC and BP seem to have stopped the oil leak. The yen advanced after the Bank of Japan maintained its key interest rate at 0.10%, as expected. The euro climbed to the highest level in two months after a successful Spanish bond sale eased financing concerns. Sterling rose to the highest level since April. The Australian dollar declined modestly, pressured by speculation slower economic growth in China will reduce demand for commodities. The Canadian dollar fell for a second day on speculation slowing US growth will reduce Canadian exports.

After breaking its uptrend yesterday, the dollar index fell sharply on further signs of a US economic slowdown. The index peaked in early-June and fell today to the lowest level since early-May. The higher dollar pressured stocks in the spring; since July 1 the dollar index has fallen 4% and the S&P 500 has risen over 6%. Support is in the 82 area and resistance in the 84 area.



Financial and Economic News and Comments

US & Canada
US producer prices fell a more-than-expected 0.5% m/m in June, the fourth fall in five months, after a 0.3% m/m decline in May, according to PPI data from the Labor Department. The producer-price inflation rate decelerated to 2.8% y/y, the slowest pace since November 2009, from May’s 5.3% y/y. The June PPI monthon- month fall was mostly due to food costs, which slid 2.2% m/m, a third successive monthly decrease. Energy prices were down 0.5% m/m, the fourth decline in five months. The core PPI, which excludes food and energy, was up as forecast 0.1% m/m in June, an eighth straight monthly advance, after a 0.2% m/m increase in May. The core CPI rate slowed as expected to 1.1% y/y from May’s 1.3% y/y.


US initial jobless claims in the week ending July 10 fell 29,000 to a lower-than-expected 429,000, the fewest since August 2008, from the previous week’s upwardly revised 458,000, figures from the Labor Department showed. The 4-week moving average decreased 11,750 to 455,250. Continuing claims in the week ending July 3 jumped 247,000 to 4,681,000 from the preceding week’s upwardly revised 4,434,000. The 4-week moving average of those continuing claims rose 22,000 to 4,581,250. The insured unemployment rate for the week ending July 3 increased to 3.7% from the prior week’s upwardly revised 3.5%.


US industrial production increased a modest 0.1% m/m in June, the 11th gain in 12 months, after an upwardly revised 1.3% m/m advance in May, according to data released by the Federal Reserve. April’s gain was revised down to 0.3% m/m while March’s was revised up to 0.6% m/m. Industrial production rose 8.2% y/y in June, a sixth straight year-on-year rise. Overall capacity utilization was unchanged at 74.1%. Manufacturing production was down 0.4% m/m in June, the first decline in four months, after a 1.0% m/m increase in May. Manufacturing capacity utilization declined to 71.4% from May’s 71.7%.


The Empire State manufacturing index dropped to a lower-than-expected 5.08 in July from 19.57 in June, indicating New York manufacturing activity expanded for an 12th straight month but at the slowest pace since December 2009, the latest Empire State manufacturing survey released by the Federal Reserve Bank of New York showed.

The Philadelphia Fed manufacturing index unexpectedly declined to 5.1 in July from 8.0 in June, indicating Philadelphia-area manufacturing continued to expand but at the slowest pace since August 2009, according to the Federal Reserve Bank of Philadelphia’s July 2010 business outlook survey.

Canada’s manufacturing sales increased 0.4% m/m to C$44.8 billion ($43.1 billion) in May, the eighth gain in nine months, after an upwardly revised 0.4% m/m advance in April, Statistics Canada reported. May manufacturing sales climbed 16.5% y/y.

Europe
The European Central Bank said its decision to leave its key interest rate unchanged at 1.00% at its July 8 policy meeting was “appropriate,” according to the July 2010 ECB Monthly Bulletin, released today. The ECB said it “continues to expect price developments to remain moderate over the policy-relevant medium-term horizon, benefiting from low domestic price pressures,” adding that it also expects the eurozone economy to expand “at a moderate and still uneven pace, in an environment of high uncertainty.”

The ZEW-CS Swiss economic expectations index dropped to 2.2 in July from 17.5 in June, suggesting Switzerland’s investor sentiment over the prospects for the economy fell sharply this month, according to the latest survey by Credit Suisse in cooperation with the Centre for European Economic Research. However, the current conditions indicator increased to 22.2 from June’s 17.5.

Asia-Pacific
Japanese machine tool orders jumped 139.5% y/y (vs. preliminarily reported 138.8% y/y) in June, a seventh straight year-on-year gain, after a 192.5% y/y surge in May, according to final June data from the Japan Machine Tool Builders’ Association. Foreign orders soared 165.7% y/y following a 240.9% y/y May surge. Domestic orders climbed 102.3% y/y in June after a 132.6% y/y gain the prior month.


China’s GDP growth slowed to 10.3% y/y in Q2 2010 from 11.9% y/y in Q1, the Statistics Bureau reported. Consumer-price inflation eased to 2.9% y/y in June from 3.1% y/y in May that was the fastest in 19 months. Producer-price inflation cooled to 6.4% y/y from May’s 7.1% y/y. Industrial production grew 13.7% y/y in June, slower than 16.5% y/y growth in May. Retail sales rose 18.3% y/y, slightly less than May’s 18.7% y/y gain. Urban fixed-asset investment climbed 25.5% y/y ytd in June after a 25.9% y/y ytd gain in May.

Источник: Hans Nilsson

15.07.2010