Greenback Gains on Better Growth Prospects
Greenback Gains on Better Growth Prospects
The dollar and yen rose on Friday as stocks fell and risk appetite declined. The Dow fell 148 points to 7776 but rose 6.8% for the week. The yen was supported by increased risk aversion and repatriation flows ahead of the end of Japan’s fiscal year on March 31. The European currencies fell on increasing growth differentials with the US as US economic data showed signs of an economic recovery while European economic figures showed an intensifying recession. Sterling fell as UK Q4 2008 GDP was unexpectedly revised lower. The Australian and Canadian dollars declined as commodity prices consolidated earlier gains. The two commodity currencies were unable to break important resistance this week. The greenback gained against all major currencies this week. Our leading economic indicators show an economic recovery in the US earlier than in other major economies.
The EUR/USD plunged after eurozone industrial orders posted the biggest decline since records started in 1996 and German Finance Minister Steinbrueck said the euro would be threatened if the EU stability and growth pact are not taken seriously. The worsening economic outlook and falling inflation increase the chance of quantitative easing by the European Central Bank. The EUR/USD has retraced over half of its gain after last week’s quantitative easing announcement by the Federal Reserve. The pair found support and closed right at the short-term uptrend. If this is broken, the pair may fall to the 1.30-area support. There is resistance in the 1.37-area. The ECB meets on April 2; it is expected to cut its benchmark interest rate 50 basis points to 1.00% and may announce quantitative easing steps.
Financial and Economic News and Comments
US & Canada
US personal income declined a slightly more-than-expected 0.2% m/m in February after a downwardly revised 0.2% m/m increase in January, while personal spending increased 0.2% m/m, as forecast, following January’s upwardly revised 1.0% m/m gain, data from the Commerce Department showed. Personal income was up 1.0% y/y while personal spending was down 0.4% y/y. Disposable personal income declined 0.1% m/m in February but rose 3.2% y/y. The overall PCE deflator (consumer inflation) increased 0.3% m/m in February, up 1.0% y/y. The core PCE deflator, which excludes food and energy, was up 0.2% m/m in February, up 1.8% y/y. After adjusting for inflation, real consumption was down 0.2% m/m in February, down 1.4% y/y.
The Reuters/University of Michigan final index of US consumer sentiment increased to 57.3 in March from 56.3 in February, still indicating US consumer confidence held near a 28-year low of 55.3 in November, Reuters/University of Michigan reported. The consumer expectations index, predicting the direction of consumer spending, improved to 53.5 from February’s 50.5, while the current conditions index declined to 63.3 from 65.5. Consumers in the March survey projected a 2.0% inflation rate over the next 12 months, compared with a 1.9% rate in the February survey.
Europe
Eurozone industrial orders declined a less-than-expected 3.4% m/m in January after a downwardly revised 8.0% m/m fall in December, Eurostat reported. Industrial orders plunged a more-than-expected 34.1% y/y, the largest drop since records began in 1996, following December’s downwardly revised 23.8% y/y decrease.
Germany’s import prices declined a slightly more-than-expected 0.5% m/m in January after an upwardly revised 3.6% m/m fall in December, data from the Federal Statistical Office showed. Import prices fell a less-than-expected 5.4% y/y, the sharpest drop since February 1999, following December’s upwardly revised 4.1% y/y slide.
UK GDP in Q4 2008 contracted a more-than-expected 1.6% q/q and 2.0% y/y, final data from the Office for National Statistics (ONS) showed, following Q3’s 0.7% q/q contraction and 0.2% y/y gain.
The UK Q4 2008 current account deficit narrowed to €7.6 billion from Q3’s revised €8.2 billion, the ONS reported.
The KOF leading indicator for Switzerland fell to -1.79 in March, the lowest level since records began in 1991, following February’s revised -1.37, according to Konjunkturforschungsstelle Swiss Institute for Business Cycle Research.
Asia-Pacific
Japan’s national consumer-price inflation fell 0.1% y/y in February, as forecast, following a flat reading in January, CPI data from the Statistics Bureau showed. The CPI excluding fresh food remained flat, as expected, while the CPI excluding fresh food and energy declined a slightly less-than-expected 0.1% y/y following January’s 0.2% y/y decline.
Tokyo’s consumer-price inflation increased a slightly less-than-expected 0.2% y/y in March, decelerating from February’s 0.5% y/y rate, according to the Statistics Bureau. The CPI excluding fresh food increased 0.4% y/y, as forecast, after February’s 0.6% y/y rise. The CPI excluding fresh food and energy declined a slightly more-than-expected 0.4% y/y, following February’s 0.1% y/y decline.
Japanese retail sales fell for a sixth consecutive month in February, falling a more-than-expected 5.8% y/y, after January’s 2.4% y/y decline, according to the Ministry of Economy, Trade and Industry. Large retailers’ sales dropped a more-than-expected 8.2% y/y, the largest decline in 11 years, following January’s 5.5% y/y fall.
Hans Nilsson
Capital Market Services, L.L.C.
www.cmsfx.com
©C2004-2005 Globicus International, Inc. and Capital Market Services, L.L.C. Any information in this report is based on data obtained from sources considered to be reliable, but no representations or guarantees are made by Capital Market Services, L.L.C. with regard to the accuracy of the data. The opinions and estimates contained herein constitute our best judgment at this date and time, and are subject to change without notice. Capital Market Services, L.L.C. accepts no responsibility or liability whatsoever for any expense, loss or damages arising out of, or in any way connected with, the use of all or any part of this report. No part of this report may be reproduced or distributed in any manner without the permission of Capital Market Services, L.L.C.
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