By Stanley White and Kosuke Goto
July 2 (Bloomberg) -- The dollar traded near a three-week low against the euro before an industry report today that may show U.S. companies lost jobs in June for the first time in four months.
The U.S. currency also traded near a three-week low versus the yen before government data tomorrow that may show U.S. employers cut jobs for a sixth consecutive month, prompting traders to pare bets the Federal Reserve will raise interest rates. South Korea's won fell for a fourth day on speculation soaring oil prices will bolster importers' demand for dollars.
``Buying the dollar now seems to be the wrong move,'' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. ``Weak numbers from the labor market are sure to push the dollar lower. You can't deny that there are sufficient reasons to worry that the U.S. economy will slow.''
The dollar traded at $1.5804 per euro at 9:54 a.m. in Tokyo from $1.5793 yesterday. It touched $1.5836 on June 30, the lowest level in three weeks, and dropped to a record $1.6019 on April 22. The dollar was little changed at 105.99 yen. It fell to a three-week low of 104.99 yen on June 30. Japan's currency traded was at 167.54 versus the euro from 167.59. The dollar may fall to $1.5830 per euro and 105.50 yen today, Ishikawa forecast.
South Korean Won
The won fell 0.3 percent to 1,050.35 against the dollar as oil gained for a second after the International Energy Agency said supplies may not keep up with demand through 2013.
Asia's worst-performing currency after the Thai baht, may stop falling because the nation's current-account deficit will narrow, Bank of Korea Deputy Governor Rhee Gwang-Ju said in an interview yesterday. The shortfall will shrink to $2.5 billion in the second half from $6.5 billion in the first half, he said.
Companies in the U.S. probably eliminated 20,000 jobs last month after adding 40,000 in May, according to the median forecast of 27 economists surveyed by Bloomberg News. The decline would be the first since February. The report from ADP Employer Services is due at 8:15 a.m. New York time.
The ADP report, which doesn't include government jobs, has overstated private employment changes by 104,000 on average each month since November. A Labor Department report will probably show tomorrow that non-farm payrolls shrank by 60,000 workers last month, according to the median forecast of 79 economists surveyed by Bloomberg News.
Labor Market
``Weak results in the ADP report would raise speculation about weak jobs data'' tomorrow, Tohru Sasaki and Junya Tanase, currency strategists in Tokyo at JPMorgan Chase & Co., wrote in a research note today. ``This would reduce expectations of a rate hike and push down the dollar.''
Futures on the Chicago Board of Trade showed a 25 percent chance the Fed will raise its 2 percent target rate for overnight lending between banks by a quarter-percentage point on Aug. 5, compared with 38 percent odds a week ago.
Crude oil for August delivery rose 68 cents to $141.65 a barrel in after-hours electronic trading on the New York Mercantile Exchange. The euro-dollar exchange rate and oil have moved in the same direction 90 percent of the time during the past year, according to Bloomberg calculations based on the correlation of their value changes. Oil touched a record $143.67 on June 30.
``If oil prices remain persistently higher, the dollar is most likely to be under pressure,'' said Boris Schlossberg, senior currency strategist at DailyFX.com in New York, an online currency dealer.
ECB Policy Meeting
The euro may gain on speculation the European Central Bank will raise interest rates tomorrow and signal more are needed in the second half of the year to stem inflation.
The ECB will increase its benchmark rate by a quarter- percentage point to 4.25 percent, according to 57 of 58 economists surveyed by Bloomberg News.
ECB executive council member Lorenzo Bini Smaghi said yesterday the bank's inflation-fighting mandate means it acts faster than the U.S. Fed's Board. ECB President Jean-Claude Trichet said June 25 the bank is ``in a state of heightened alertness'' on prices.
``We expect the ECB to raise rates three times this year, including tomorrow's one,'' said Masafumi Yamamoto, head of foreign-exchange strategy in Tokyo at Royal Bank of Scotland Group Plc, the world's fifth-largest currency trader. ``The euro may rise to $1.60 against the dollar in coming months.''
The ECB has kept its benchmark rate at 4 percent since June of last year. The Fed lowered rates seven times between September and April, to 2 percent from 5.25 percent.
The yen's real effective exchange rate, measured against 15 currencies of major trading partners, fell for a third month in June, data from the Bank of Japan showed today.
The rate, calculated by the central bank, slipped 2.8 percent last month to 97.2 from 100 in May. The index climbed to a 21-month high of 102.3 in March, as the yen reached 95.76 per dollar on March 17.
To contact the reporters on this story: Stanley White in Tokyo at swhite28@bloomberg.netKosuke Goto in Tokyo at kgoto2@bloomberg.net
Last Updated: July 1, 2008 21:01 EDT
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Wednesday, July 2, 2008
Taiwan Dollar Beats Baht, Peso, Won as Ma Spurs China Trade
By Aaron Pan and Judy Chen
July 2 (Bloomberg) -- Taiwan's dollar climbed more than any Asian currency this year as improving relations with China bolstered investor confidence in the island's economy.
The currency climbed 6.8 percent against the U.S. dollar, beating the 6.5 percent gain in the Chinese yuan, as new President Ma Ying-jeou negotiated direct flights to China and allowed banks to invest in the world's most-populous nation. The Taiwan dollar will appreciate 1.2 percent and the yuan will strengthen 3.1 percent by year-end, according to the median forecast in a Bloomberg News survey of strategists.
``The Taiwan dollar and the yuan both have further upside and can continue to benefit from closer ties,'' said Norman Chan, chief executive officer of PCM Capital Ltd. in Hong Kong, which manages a fund of Asian hedge funds and recently bought Taiwanese assets. ``I expect further gains in Asian currencies especially if the yuan continues to rise.''
Taiwan's economy grew 6.1 percent in the first quarter from a year earlier as exports of electronics and chemicals to China helped the island weather a U.S. economic slowdown. Taiwan's currency reserves have almost doubled in the past five years to $290 billion and the trade surplus was $2.2 billion in May. The central banks on both sides of the 100-mile (161-kilometer) Taiwan Strait have allowed their currencies to appreciate to moderate inflation.
Diverging Fortunes
Asian currencies with smaller surpluses underperformed this year. The Thai baht dropped 11 percent, the most in Asia, as the current account turned into a deficit and protesters laid siege to Prime Minister Samak Sundaravej's residence.
The Philippine peso weakened 8.3 percent as record rice costs sent President Gloria Arroyo's popularity to the lowest since 2005. The South Korean won lost 10.6 percent as record oil prices widened its trade deficit and prompted a strike by truck drivers that brought ports to a near standstill.
``Dynamics are shifting to focus on political stability,'' said Leslie Phang, the Singapore-based head of investments at the private-clients unit of Schroders Plc, which oversees about $260 billion globally. ``The yuan is certainly still an outperformer and the Taiwan dollar has also benefited.''
Closer Ties
The Taiwan dollar posted its biggest first-half gain since 1989 as the government negotiated an agreement that will allow an average of 3,000 Chinese tourists a day to visit starting July 18. Direct transportation links between China and Taiwan were restricted since the end of a civil war in 1949 when the Communist Party defeated the Kuomintang.
The Taiwan dollar climbed 0.2 percent in June to NT$30.354, the second monthly gain and was little changed at NT$30.360 yesterday. Ma was elected in March, pledging closer ties with China. The currency will rise to NT$30 by the end of this year, according to the median estimate of 21 analysts in Bloomberg's survey.
The yuan, up 1.3 percent last month to 6.8543 per U.S. dollar, will strengthen to 6.65 by the end of the year, according to the median forecast of 25 economists. China's currency rose more than 20 percent since the peg to the dollar was scrapped in 2005.
``Both China and Taiwan will allow their currencies to rise to stem imported inflation,'' said Hideki Hayashi, chief economist in Tokyo at Shinko Securities Co., a unit of Japan's second-largest publicly traded bank.
Rising Interest Rates
The yuan will rise to 6.8 by the end of this year, he said.
Taiwan raised its benchmark interest rate to a seven-year high of 3.625 percent last week, after forecasting 3.29 percent inflation this year, the highest annual rate in 13 years. China's inflation quickened to 8.1 percent in the first five months from 4.8 percent for all of 2007.
Jim Rogers, the investor who in April 2006 correctly predicted oil would reach $100 a barrel and gold $1,000 an ounce, told an investor conference in Nanjing on June 28 not to ``give up'' on Chinese shares after the country's stock index fell almost 50 percent this year. Rogers told President Ma in a meeting on June 25 that he has been buying Taiwan stocks.
Taiwan's government says the June travel and tourism agreements with China may help boost economic growth to 5 percent this year from the 4.8 percent forecast in December. China expanded 10.6 percent in the first quarter.
Western Asset Management Co., part of Baltimore-based Legg Mason Inc., added to its bet on the yuan in June, expecting a 10 percent gain in the year ahead, said Rajeev De Mello who helps oversee about $600 billion as head of Asian bonds in Singapore.
``Now is a good time to get in,'' he said. ``Chinese reserves are still growing at an incredibly fast pace. It's adding about $50 billion a month, which is more than most countries have in total.''
To contact the reporters on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net; Yumi Teso in Singapore at yteso@bloomberg.net.
Last Updated: July 1, 2008 13:27 EDT
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Australian, N.Z. Dollars Fall on Concern Economies Will Slow
By Ron Harui and Tracy Withers
July 2 (Bloomberg) -- The Australian and New Zealand dollars fell on concern growth in the nations will slow, backing the case for the Reserve Bank of Australia to keep interest rates on hold and New Zealand's central bank to cut them.
Australia's currency weakened for a second day before government reports on retail sales and building approvals that may add to signs the economy is cooling. New Zealand's currency also declined for a second day after Reserve Bank of New Zealand Governor Alan Bollard signaled the nation's economic expansion is slowing.
``Should today's reports on retail sales and building approvals indicate demand is continuing to moderate this could trigger a further paring of expectations for an RBA rate hike, weighing on the Australian dollar,'' John Kyriakopoulos, a currency strategist at National Australia Bank Ltd. in Sydney, said in a note to clients.
The Australian dollar fell 0.3 percent to 95.46 U.S. cents as of 10:54 a.m. in Sydney, from 95.73 cents late in Asia yesterday and a 25-year high of 96.68 cents touched June 30. The currency traded at 101.18 yen from 100.90 yen.
New Zealand's currency declined 0.6 percent to 75.76 U.S. cents, the biggest loss since June 23. The currency bought 80.36 yen from 80.35 yen late in Asia yesterday.
Home-building approvals in Australia may have fallen 3.4 percent in May from the previous month, the fourth decline this year, according to the median estimate of economists surveyed by Bloomberg News. Retail sales may have gained 0.1 percent in May, a separate Bloomberg survey showed. Both reports will be published at 11:30 a.m. Sydney time.
Rate Outlook
There is a 24 percent chance the RBA will raise interest rates by a quarter-percentage point to 7.5 percent by October, compared with 52 percent odds a week ago, according to probabilities implied by 30-day interest-rate tracking futures traded on the Sydney Futures Exchange.
Benchmark interest rates are 7.25 percent in Australia and 8.25 percent in New Zealand, compared with 2 percent in the U.S. and 0.5 percent in Japan, making the South Pacific currencies popular targets for so-called carry trades.
In a carry trade, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the spread between the borrowing and lending rate. The risk is currency market moves erase those profits.
The New Zealand dollar slid the most in a week after RBNZ Governor Bollard said late yesterday in an interview with CentralBankNews.com that the economy was probably ``flat'' in the three months ended June 30. Twelve of 13 economists surveyed by Bloomberg expect he will cut rates by September.
`Weigh Negatively'
``Comments from Governor Bollard will continue to weigh negatively on the New Zealand dollar,'' said Philip Borkin, an economist at ANZ National Bank Ltd. in Wellington. ``There are less risky, relatively high-yield currencies to hold.''
There is a 27 percent chance New Zealand's central bank will lower its official cash rate at its next meeting July 24, compared with zero percent odds a month earlier, according to a Credit Suisse Group index based on interest-rate swaps.
``They will be cutting rates before too long,'' said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon, the world's largest custodial bank, with more than $23 trillion in assets under administration. ``We expect the kiwi to keep falling,'' he said, referring to the currency by its nickname.
Australian government bonds declined for a second day. The yield on the 10-year note rose 3 basis points to 6.53 percent, according to data compiled by Bloomberg. The price of the 5.25 percent bond due March 2019 fell 0.234, or A$2.34 per A$1,000 face amount, to 90.265. A basis point is 0.01 percentage point.
New Zealand's government debt was little changed with the 10-year bond yield holding at 6.34 percent.
To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Tracy Withers in Wellington at twithers@bloomberg.net.
Last Updated: July 1, 2008 21:14 EDT
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Won May Stop Decline After 11% Drop, BOK's Rhee Says
By Kim Kyoungwha
July 2 (Bloomberg) -- South Korea's won, Asia's worst- performing currency after the Thai baht, may stop falling because the nation's current-account deficit will narrow, Bank of Korea Deputy Governor Rhee Gwang-Ju said.
The deficit, the broadest measure of international trade, will shrink to $2.5 billion in the second half from $6.5 billion in the first six months, Rhee, the central bank's head of international affairs, said in an interview yesterday. There is a ``misperception'' of the risks posed to Asia's fourth-biggest economy by an increase in overseas debt, he said.
``There will be no convincing reasons that the won will depreciate further,'' said Rhee, 57. ``The won has depreciated since early March but the trend is not likely to continue for the rest of the year.''
The won, which weakened 11 percent this year, will climb 5 percent to 995 per dollar by Dec. 31, according to the median estimate of 24 strategists surveyed by Bloomberg News. The currency fell as record oil prices quickened inflation to a decade-high of 5.5 percent in June from 3.6 percent in December. The drop is the biggest since the six months ended March 31, 2001. Only the baht's 12 percent slide has been steeper in the region.
The won fell 0.3 percent to 1,050.05 as of 9:40 a.m. in Seoul, according to Seoul Money Brokerage Services Ltd. South Korea bought about $7 billion worth of won since the end of May to boost the value of the currency and slow inflation, JoongAng Ilbo newspaper reported yesterday. Rhee declined to comment on intervention or interest-rate policies.
This year's decline in Asian currencies doesn't signal a repeat of the 1997 financial crisis, Rhee said.
No Contagion Risk
In 1997, South Korea's currency reserves plunged by $20.5 billion as the government made an unsuccessful attempt to prop up the exchange rate after an exodus of foreign investors triggered by the collapse in Thailand's baht. The government was forced to turn to the International Monetary Fund for $57 billion of loans to help businesses repay overseas debt. The won slumped 46 percent in the final three months of the year.
``Until now, I don't see the contagion risk,'' Rhee said. ``The situation has changed very much in the region.''
JPMorgan Chase & Co., which correctly forecast the slump in the won, predicts the currency will gain to 1,020 by the end of the year before resuming its decline next year.
``South Korea has many small risks,'' said Lim Jiwon, an economist in Seoul at JPMorgan. While investors are asking about the risk of a regional currency collapse, the possibility is ``quite low,'' she said.
The IMF urged Korea last week to increase monitoring of external debt, which doubled to $412.5 billion on March 31, from $201 billion two years ago, according to central bank data. Debt maturing within a year was equivalent to 82 percent of the nation's reserves, approaching the 89 percent level in 1999.
External Debt
The increase in short-term debt was mainly caused by exporters' locking in dollar rates for their overseas earnings and Korean mutual funds and life insurers hedging investments in overseas stocks, Rhee said. Korean banks, which provided the services, borrowed dollars to limit their risks, he said.
``I'm concerned about the misperception of risk,'' Rhee said, adding that hedging activities will stabilize. ``There will be no problem to repay debt.''
South Korea had $258.1 billion of foreign-exchange reserves on June 30, the world's sixth-largest, compared with $7.3 billion in November 1997. South Korea has since broken up business groups known as chaebol that used overseas bank loans to fund unprofitable global projects.
Central bankers in Asia now meet on a regular basis and will provide funds to each other when needed, Rhee said. Asian governments agreed to lend each other money at favorable terms to support exchange rates in Chiang Mai, Thailand, in 2000.
Export Growth
Exports by Samsung Electronics Co. and Hyundai Motor Co. will help South Korea expand as domestic demand slows, the central bank forecasts. The economy will expand 4.6 percent this year, down from a previous prediction of 4.7 percent and 5 percent in 2007, according to the estimates. Overseas sales will improve the current account in the second half, Rhee said.
``The current-account deficit has shown a seasonal pattern with a deficit in first half and reduced deficit or even a surplus in the second half,'' Rhee said. ``This pattern will continue.''
Rhee said price stability was important to achieve ``sustainable growth.'' The Bank of Korea has kept its benchmark interest rate at a seven-year high of 5 percent to fight inflation.
To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net;
Last Updated: July 1, 2008 21:01 EDT
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Bollard Says N.Z. Economy Won't Recover Until Second Half
By Tracy Withers
July 2 (Bloomberg) -- New Zealand's economy won't recover until the second half of the year, CentralBankNews.com reported, citing an interview with Reserve Bank Governor Alan Bollard.
``The second quarter will be roughly flat followed by a soft pickup later in the year,'' Bollard said, according to the Web site. ``We think we're in for a softer year.''
A report last week showed the economy contracted 0.3 percent, matching Bollard's June 5 forecast. Eight of 13 economists surveyed by Bloomberg News expect the economy also contracted in the second quarter, putting New Zealand in its first recession since 1998 and raising the prospects of interest-rate cuts as early as this month.
``We expected the 0.3 percent contraction,'' Bollard said. ``That doesn't mean we're not disappointed. We are. And it represents quite a significant slowdown.''
A Reserve Bank spokesman confirmed the interview took place. He declined to comment further.
Bollard, who spoke on the sidelines of a Bank for International Settlements conference in Basel, Switzerland, said a weak housing market and drought led to the first-quarter contraction.
``Housing has dropped off quite a lot, which has affected household consumption,'' he said. ``Also, we had a drought in the west coast, where more of the dairy industry is, and as a consequence we lost probably NZ$500 million ($380 million) of dairy production.''
To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.
Last Updated: July 1, 2008 17:22 EDT
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Asian Stocks Fall for a Fourth Day; BHP, Nippon Yusen Decline
By Chen Shiyin
July 2 (Bloomberg) -- Asian stocks fell for a fourth day, led by mining and shipping companies, on concern that the slowdown in global economic growth will hurt raw-materials demand.
BHP Billiton Ltd., the world's largest mining company, dropped after Credit Suisse Group lowered its earnings estimate for rival aluminum producers Alcoa Inc. and Century Aluminum Co. Nippon Yusen K.K., Japan's largest shipping line, slipped after a measure of transporting bulk commodities retreated.
The MSCI Asia Pacific Index lost 0.4 percent to 135.43 at 9:12 a.m. in Tokyo, with two stocks declining for each that gained. Yesterday, the benchmark completed a three-day, 2.2 percent retreat after reports showed Chinese manufacturing growth slowed, South Korea's inflation accelerated and Japanese business confidence sank to the lowest in four years.
Japan's Nikkei 225 Stock Average sank 0.3 percent to 13,430.13, on course for its 10th straight day of losses. Benchmark indexes also fell in Australia and South Korea.
U.S. stocks advanced yesterday, helping the market rebound from its worst month in six years, after better-than-forecast sales at General Motors Corp. overshadowed concern that rising energy costs will damp corporate profits.
To contact the reporter for this story: Chen Shiyin in Singapore at schen37@bloomberg.net.
Last Updated: July 1, 2008 20:29 EDT
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July 2 (Bloomberg) -- Asian stocks fell for a fourth day, led by mining and shipping companies, on concern that the slowdown in global economic growth will hurt raw-materials demand.
BHP Billiton Ltd., the world's largest mining company, dropped after Credit Suisse Group lowered its earnings estimate for rival aluminum producers Alcoa Inc. and Century Aluminum Co. Nippon Yusen K.K., Japan's largest shipping line, slipped after a measure of transporting bulk commodities retreated.
The MSCI Asia Pacific Index lost 0.4 percent to 135.43 at 9:12 a.m. in Tokyo, with two stocks declining for each that gained. Yesterday, the benchmark completed a three-day, 2.2 percent retreat after reports showed Chinese manufacturing growth slowed, South Korea's inflation accelerated and Japanese business confidence sank to the lowest in four years.
Japan's Nikkei 225 Stock Average sank 0.3 percent to 13,430.13, on course for its 10th straight day of losses. Benchmark indexes also fell in Australia and South Korea.
U.S. stocks advanced yesterday, helping the market rebound from its worst month in six years, after better-than-forecast sales at General Motors Corp. overshadowed concern that rising energy costs will damp corporate profits.
To contact the reporter for this story: Chen Shiyin in Singapore at schen37@bloomberg.net.
Last Updated: July 1, 2008 20:29 EDT
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Japan Stocks Fall, Sending Nikkei to Worst Streak in 43 Years
By Masaki Kondo and Makiko Kitamura
July 2 (Bloomberg) -- Japan stocks fell, bringing the Nikkei 225 Stock Average's losing streak to the longest in 43 years, after a decline in cargo fees drove down shipping companies.
Nippon Yusen K.K., Japan's largest shipper, and rival Kawasaki Kisen Kaisha Ltd. tumbled for the first time in three days. Isuzu Motors Ltd., the nation's biggest maker of light-duty trucks, led automakers lower after rising gasoline prices curbed demand in the U.S.
The Nikkei 225 Stock Average fell 81.37, or 0.6 percent, to 13,381.83 as of 9:48 a.m. in Tokyo, extending its decline to a 10th day, the longest losing streak since March 1965. The broader Topix index slumped 9.53, or 0.7 percent, to 1,310.54. All but three of 33 industry groups on the Topix fell.
The Baltic Dry Index, a measure of shipping costs for commodities, tumbled the most in a week on speculation Chinese iron-ore demand is weakening as prices rise.
Nippon Yusen sank 2.8 percent to 999 yen with Kawasaki Kisen falling 3 percent to 972 yen. Mitsui O.S.K. Lines Ltd. lost 2.1 percent to 1,462 yen. Shipping lines had the biggest drop among groups on the Topix.
Isuzu tumbled 2.6 percent to 496 yen, set for the lowest since May 12. Suzuki Motor Corp., Japan's No. 1 minicar maker, slumped 4.1 percent to 2,350 yen, and Daihatsu Motor Co. sank 2.1 percent. Automakers accounted 12 percent for the Topix's decline.
Isuzu's sales in the U.S. fell by almost half last month from a year earlier, while Suzuki had a 5.2 percent drop, according to the companies. The price of crude oil almost doubled in the past 12 months.
Nikkei futures expiring in September retreated 0.5 percent to 13,390 in Osaka and slumped 0.5 percent to 13,405 in Singapore.
To contact the reporter on this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net.
Last Updated: July 1, 2008 21:05 EDT
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July 2 (Bloomberg) -- Japan stocks fell, bringing the Nikkei 225 Stock Average's losing streak to the longest in 43 years, after a decline in cargo fees drove down shipping companies.
Nippon Yusen K.K., Japan's largest shipper, and rival Kawasaki Kisen Kaisha Ltd. tumbled for the first time in three days. Isuzu Motors Ltd., the nation's biggest maker of light-duty trucks, led automakers lower after rising gasoline prices curbed demand in the U.S.
The Nikkei 225 Stock Average fell 81.37, or 0.6 percent, to 13,381.83 as of 9:48 a.m. in Tokyo, extending its decline to a 10th day, the longest losing streak since March 1965. The broader Topix index slumped 9.53, or 0.7 percent, to 1,310.54. All but three of 33 industry groups on the Topix fell.
The Baltic Dry Index, a measure of shipping costs for commodities, tumbled the most in a week on speculation Chinese iron-ore demand is weakening as prices rise.
Nippon Yusen sank 2.8 percent to 999 yen with Kawasaki Kisen falling 3 percent to 972 yen. Mitsui O.S.K. Lines Ltd. lost 2.1 percent to 1,462 yen. Shipping lines had the biggest drop among groups on the Topix.
Isuzu tumbled 2.6 percent to 496 yen, set for the lowest since May 12. Suzuki Motor Corp., Japan's No. 1 minicar maker, slumped 4.1 percent to 2,350 yen, and Daihatsu Motor Co. sank 2.1 percent. Automakers accounted 12 percent for the Topix's decline.
Isuzu's sales in the U.S. fell by almost half last month from a year earlier, while Suzuki had a 5.2 percent drop, according to the companies. The price of crude oil almost doubled in the past 12 months.
Nikkei futures expiring in September retreated 0.5 percent to 13,390 in Osaka and slumped 0.5 percent to 13,405 in Singapore.
To contact the reporter on this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net.
Last Updated: July 1, 2008 21:05 EDT
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Australia Stocks Update: S&P/ASX 200 Falls 17.60 to 5,121.30
By Nicolas Johnson
July 2 (Bloomberg) -- Australia's benchmark stock index, the S&P/ASX 200 Index, fell 0.34 percent at 10:05 a.m.
The index of 200 companies traded on the Australian Stock Exchange fell 17.60 to 5,121.30. Among the stocks in the index, 49 rose, 68 fell and 83 were unchanged.
Declines in the S&P/ASX 200 Index were led by Bhp Billiton Ltd, Fortescue Metals Group Ltd and Foster's Group Ltd. About 67.86 million shares changed hands on the Australian Stock Exchange.
Bhp Billiton Ltd, which fell 90 cents to A$43.50, was the most active stock by value in Australia.
The next most-active issues were Australia & New Zealand Banking Group Ltd, which rose 10 cents to A$17.87, and Commonwealth Bank Of Australia, which rose 18 cents to A$39.41.
Last Updated: July 1, 2008 20:05 EDT
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July 2 (Bloomberg) -- Australia's benchmark stock index, the S&P/ASX 200 Index, fell 0.34 percent at 10:05 a.m.
The index of 200 companies traded on the Australian Stock Exchange fell 17.60 to 5,121.30. Among the stocks in the index, 49 rose, 68 fell and 83 were unchanged.
Declines in the S&P/ASX 200 Index were led by Bhp Billiton Ltd, Fortescue Metals Group Ltd and Foster's Group Ltd. About 67.86 million shares changed hands on the Australian Stock Exchange.
Bhp Billiton Ltd, which fell 90 cents to A$43.50, was the most active stock by value in Australia.
The next most-active issues were Australia & New Zealand Banking Group Ltd, which rose 10 cents to A$17.87, and Commonwealth Bank Of Australia, which rose 18 cents to A$39.41.
Last Updated: July 1, 2008 20:05 EDT
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Crude Oil Rises a Second Day as IEA Predicts `Tight' Supplies
By Margot Habiby and Samantha Zee
July 2 (Bloomberg) -- Oil rose for a second day after the International Energy Agency said supplies may not keep up with demand through 2013, and on speculation that Israel could take military action against Iran.
The IEA said in a report that spare OPEC capacity will shrink by 2013, keeping the market ``tight.'' Israel is increasingly likely to attack Iran this year if OPEC's second- largest producer acquires enough enriched uranium to build a weapon, potentially threatening Mideast supplies, ABC News said, citing an unidentified Pentagon official.
``The long-term supply outlook continues to face very real constraints,'' Brad Samples, commodity analyst for Summit Energy Inc. in Louisville, Kentucky, said in an interview.
Crude oil for August delivery rose as much as 83 cents to $141.80 a barrel and traded at $141.63 at 9:08 a.m. Sydney time in after-hours electronic trading on the New York Mercantile Exchange. Oil touched a record $143.67 on June 30.
``The Iranian situation looked like it was cooling down, and now the temperature has been turned up very high,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.
Checking gains was a statement from the U.S. State Department, which dismissed yesterday's ABC report on an Israeli attack on Iran. Iranian Foreign Minister Manouchehr Mottaki said he didn't think Israel would attack his country because of its nuclear program, CNBC reported, citing an NBC News interview.
`Fine Line'
U.S. State Department spokesman Tom Casey said he had ``no information that would substantiate'' the ABC report and criticized the official for not speaking publicly. Pentagon spokesman Bryan Whitman declined to address the report.
``Iran is trying to tread a fine line,'' Tom Hartmann, an analyst at Altavista Worldwide Trading Inc. in Mission Viejo, California, said in an interview. ``Iran is dependent on oil Imports, so if they shut down the Gulf, they shut down an economic life line.''
The Organization of Petroleum Exporting Countries' spare capacity will rise from 2.5 million barrels a day in 2008 to more than 4 million a day in 2010 before fading to ``negligible levels'' of around 1 million barrels a day by 2013, the IEA said in its Medium-Term Oil Market Report yesterday.
``This IEA report is more bad news,'' said Phil Flynn, a senior trader with Alaron Trading Corp. in Chicago. ``No matter what we do on the demand side, we don't cut back enough to get caught up on supply.''
No Discount
Saudi Arabia, the world's largest oil exporter, is not willing to sell crude oil at a discount to the normal market price for its crude grades, Oil Minister Ali al-Naimi said yesterday. Analysts including the London-based Centre for Global Energy Studies have said the kingdom may need to lower its prices to find sufficient buyers.
Saudi Arabia plans to raise crude production to 9.7 million barrels a day in July.
The IEA, the Paris-based adviser to 27 oil-consuming nations, cut more than 3 million barrels a day from its 2012 global demand forecast.
``There's demand destruction in the number one oil consumer right here in the U.S.,'' said Guy Gleichmann, president of United Investors Group in Hollywood, Florida. ``If the U.S. goes into a protracted slowdown, it's going to spread to Asia and other countries.''
Gasoline Prices
Gasoline for August delivery rose 1.64 cents to $3.5298 a gallon in after-hours trading in New York. Prices are up 53 percent in the past year.
Pump prices are following futures. Regular gasoline, averaged nationwide, rose 0.1 cent to a record $4.087 a gallon, AAA, the nation's largest motorist organization, said yesterday.
Ford Motor Co. said June sales fell 28 percent, the seventh straight monthly decline for the No. 2 U.S. automaker, as gasoline prices above $4 a gallon drove consumers away from fuel-thirsty trucks.
U.S. gasoline demand fell 2.1 percent last week, the 10th consecutive decline, a MasterCard Inc. report yesterday showed.
U.S. crude-oil inventories probably fell 700,000 barrels last week from 301.8 million barrels, according to the median estimate of seven analysts surveyed by Bloomberg News. It would be the sixth decline in seven weeks.
Gasoline supplies probably rose by 500,000 barrels from 208.8 million barrels.
Strait of Hormuz
``Any kind of neutral-to-bullish numbers means the market has enough strength to continue to $150 a barrel in crude oil,'' said Gene McGillian, an analyst at TFS Energy LLC in Stamford, Connecticut.
NBC News reported that Iranian Foreign Minister Manouchehr Mottaki, in an interview, backed away from the country's previous stance on whether it would block the Strait of Hormuz if there's a conflict. About 40 percent of Middle East oil is shipped through the Strait, at the mouth of the Persian Gulf.
The head of Iran's Revolutionary Guard, Major General Mohammad Ali Jafari, told the Iranian Jame Jam newspaper on June 28 that the country would ``definitely act to impose control on the Persian Gulf and Strait of Hormuz,'' according to the state- run Fars News agency.
Commodities had their best first half in 35 years. The 19 commodities in the Reuters/Jefferies CRB Index jumped 29 percent this year, the most since 1973 and more than any second-half gain in at least five decades, data compiled by Bloomberg show.
The next six months may not be as rewarding because record prices for oil, copper and a dozen other raw materials may crimp consumption and encourage growth in supply.
To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net; Samantha Zee in Los Angeles at szee@bloomberg.net
Last Updated: July 1, 2008 19:08 EDT
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Soybeans Rise to Record as Floods Cut U.S. Acreage, Hurt Yields
By Jeff Wilson
July 1 (Bloomberg) -- Soybeans rose above $16 a bushel for the first time ever on speculation that the worst Midwest flooding in 15 years will limit gains in U.S. production and inventories.
U.S. farmers may harvest 96.8 percent of the acres planted, down from an earlier forecast of 98.1 percent, the U.S. Department of Agriculture said yesterday in a report. The flood-damaged fields may curb the production increases the government predicted after farmers planted 17 percent more acres this year. Some fields may need to be replanted.
``The soybean crop is struggling,'' said Ron Mortensen, president of Advantage Ag Strategies Ltd. in Fort Dodge, Iowa. ``Bean yields may be reduced'' by late planting, he said.
Soybean futures for November delivery rose 36 cents, or 2.3 percent, to $16.10 a bushel on the Chicago Board of Trade, after earlier reaching a record $16.11. The price jumped 15 percent in June and 31 percent in the second quarter, the most since the three months through June 1988. Most-active futures are up 89 percent in the past year.
U.S. farmers intended to sow 74.533 million acres of soybeans, and about 95 percent of the crop was planted on June 29, leaving 3.7 million acres yet to plant, USDA data show. The USDA said yesterday harvested acreage would have been 1.3 million acres larger without the flooding.
An estimated 90 percent of the crop had emerged from the ground on June 29, compared with 82 percent a week earlier and the previous five-year average of 96 percent, the USDA said. About 58 percent of the soybeans were in good or excellent condition as of June 29, compared with 57 percent a week earlier and 68 percent a year earlier, the USDA said.
Condition Declines
Eight of the top 18 producing states showed declines in conditions last week, with three unchanged, the USDA said. Soybeans rated poor or very poor rose to 11 percent of the crop, up from 10 percent a week earlier. Overall conditions are the worst since 2002.
``The progress data remain consistent with below-average yield potential,'' Bill Nelson, a vice president for Wachovia Securities LLC in St. Louis, said today in a note to clients. ``USDA data imply soybean production potential of 3 billion bushels or less, and that is less than USDA forecast demand of over 3.06 billion.''
The price also rose on speculation U.S. inventories before the harvest will be smaller than the 125 million bushels the USDA forecast June 10. A three-month old farmers' strike in Argentina boosted demand for U.S. supplies, analysts said.
Soybean Inventories
U.S. soybean inventories as of June 1 were estimated at 676 million bushels, down 38 percent from a year earlier and the smallest in four years, the USDA said yesterday. Farmer- owned soybean inventories on June 1 totaled 227 million bushels, down 55 percent, while reserves held by processors and exporters slid 24 percent to 449 million, government data show.
U.S. inventories before the harvest are forecast to fall to 125 million bushels, or 15 days of expected consumption, the USDA said earlier this month. Soybean reserves before last year's harvest represented 68 days of consumption.
There were no deliveries against expiring July soybean futures for the second straight day, an indication of tightening U.S. inventories, said Greg Wagner, a senior commodity analyst for AgResource Co. in Chicago.
``Increased exports and crushing could drop supplies to 90 million bushels'' before U.S. farmers start harvesting, said Wagner, who called the soybean supply ``intolerably tight.''
Soybeans are the second-biggest U.S. crop, valued at $26.8 billion last year, government figures show. Corn is the biggest, with a value of $52.1 billion in 2007.
To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net.
Last Updated: July 1, 2008 17:27 EDT
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July 1 (Bloomberg) -- Soybeans rose above $16 a bushel for the first time ever on speculation that the worst Midwest flooding in 15 years will limit gains in U.S. production and inventories.
U.S. farmers may harvest 96.8 percent of the acres planted, down from an earlier forecast of 98.1 percent, the U.S. Department of Agriculture said yesterday in a report. The flood-damaged fields may curb the production increases the government predicted after farmers planted 17 percent more acres this year. Some fields may need to be replanted.
``The soybean crop is struggling,'' said Ron Mortensen, president of Advantage Ag Strategies Ltd. in Fort Dodge, Iowa. ``Bean yields may be reduced'' by late planting, he said.
Soybean futures for November delivery rose 36 cents, or 2.3 percent, to $16.10 a bushel on the Chicago Board of Trade, after earlier reaching a record $16.11. The price jumped 15 percent in June and 31 percent in the second quarter, the most since the three months through June 1988. Most-active futures are up 89 percent in the past year.
U.S. farmers intended to sow 74.533 million acres of soybeans, and about 95 percent of the crop was planted on June 29, leaving 3.7 million acres yet to plant, USDA data show. The USDA said yesterday harvested acreage would have been 1.3 million acres larger without the flooding.
An estimated 90 percent of the crop had emerged from the ground on June 29, compared with 82 percent a week earlier and the previous five-year average of 96 percent, the USDA said. About 58 percent of the soybeans were in good or excellent condition as of June 29, compared with 57 percent a week earlier and 68 percent a year earlier, the USDA said.
Condition Declines
Eight of the top 18 producing states showed declines in conditions last week, with three unchanged, the USDA said. Soybeans rated poor or very poor rose to 11 percent of the crop, up from 10 percent a week earlier. Overall conditions are the worst since 2002.
``The progress data remain consistent with below-average yield potential,'' Bill Nelson, a vice president for Wachovia Securities LLC in St. Louis, said today in a note to clients. ``USDA data imply soybean production potential of 3 billion bushels or less, and that is less than USDA forecast demand of over 3.06 billion.''
The price also rose on speculation U.S. inventories before the harvest will be smaller than the 125 million bushels the USDA forecast June 10. A three-month old farmers' strike in Argentina boosted demand for U.S. supplies, analysts said.
Soybean Inventories
U.S. soybean inventories as of June 1 were estimated at 676 million bushels, down 38 percent from a year earlier and the smallest in four years, the USDA said yesterday. Farmer- owned soybean inventories on June 1 totaled 227 million bushels, down 55 percent, while reserves held by processors and exporters slid 24 percent to 449 million, government data show.
U.S. inventories before the harvest are forecast to fall to 125 million bushels, or 15 days of expected consumption, the USDA said earlier this month. Soybean reserves before last year's harvest represented 68 days of consumption.
There were no deliveries against expiring July soybean futures for the second straight day, an indication of tightening U.S. inventories, said Greg Wagner, a senior commodity analyst for AgResource Co. in Chicago.
``Increased exports and crushing could drop supplies to 90 million bushels'' before U.S. farmers start harvesting, said Wagner, who called the soybean supply ``intolerably tight.''
Soybeans are the second-biggest U.S. crop, valued at $26.8 billion last year, government figures show. Corn is the biggest, with a value of $52.1 billion in 2007.
To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net.
Last Updated: July 1, 2008 17:27 EDT
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Gold Rises to 10-Week High as Iran Tensions Mount; Silver Gains
By Pham-Duy Nguyen
July 1 (Bloomberg) -- Gold rose to the highest in almost 10 weeks on speculation that mounting tensions over Iran's nuclear program will spur investor demand for a haven from market turmoil. Silver also gained.
Crude-oil futures, which doubled to a record in the past year, jumped as much as 2.4 percent today after ABC News reported Israel is likely to attack Iran, OPEC's second-largest producer. The Dow Jones Industrial Average has tumbled into bear-market territory. Gold has rallied 45 percent in the past year, and UBS AG forecast a higher average price for the metal.
``Gold is always a safe-haven asset,'' said Matt Zeman, a metals trader at LaSalle Futures Group Inc. in Chicago. ``You've got inflation, geopolitical risk, extremely high oil prices and a weak economy. All the pieces of the puzzle are there for gold to go higher.''
Gold futures for August delivery climbed $16.20, or 1.7 percent, to $944.50 an ounce on the Comex division of the New York Mercantile Exchange, the highest closing price for a most-active contract since April 16.
Silver futures for September delivery climbed 78 cents, or 4.5 percent, to $18.29 an ounce. It was the biggest percentage gain for a most-active contract since March 5. The metal rose 1.2 percent in the second quarter while gold gained 0.7 percent.
Israel may bomb Iran if the Persian Gulf nation acquires enough uranium to build a weapon, potentially threatening Mideast oil supplies, ABC said, citing a Pentagon official it didn't name. The 30-stock Dow Industrial average fell as much as 1.5 percent, surpassing the 20 percent decline from its recent peak, in October, that can signal the start of a bear market.
Almost a quarter of the world's oil flows through the Strait of Hormuz, a narrow waterway between Iran and Oman at the mouth of the Persian Gulf.
IEA Forecast
Oil futures rose as high as $143.33 a barrel in New York after reaching a record $143.67 yesterday. The International Energy Agency said demand may exceed production through 2013.
``Crude-oil prices remain in the driver's seat in the markets and are still seen as the primary factor impacting the dollar, gold, stocks and readings on inflation,'' Jon Nadler, an analyst at Kitco Minerals & Metals Inc. in Montreal, said in a report.
Gold reached a record $1,033.90 on March 17 as the Federal Reserve reduced U.S. borrowing costs, sending the dollar to an all-time low against the euro and commodities such as corn, wheat and copper to record prices.
The average gold price will be $895 an ounce this year, UBS projected today, up from an earlier forecast of $851.
Rally's Limits
Still, the metal's rally may be limited after seven straight annual gains, analysts said.
``You can't eat gold or put it in your gas tank, so how much more do investors feel there is in this?'' Miguel Perez- Santalla, a vice president at Heraeus Precious Metals Management in New York, said in an e-mail.
Gold will average $800 an ounce next year and $730 in 2010, UBS said.
``With UBS's views that the dollar will firm in 2008, inflation will decline and that the worst of the credit crunch should be felt this year, we expect some of this unusually strong investment demand will slow and even reverse,'' UBS said.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
Last Updated: July 1, 2008 14:24 EDT
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July 1 (Bloomberg) -- Gold rose to the highest in almost 10 weeks on speculation that mounting tensions over Iran's nuclear program will spur investor demand for a haven from market turmoil. Silver also gained.
Crude-oil futures, which doubled to a record in the past year, jumped as much as 2.4 percent today after ABC News reported Israel is likely to attack Iran, OPEC's second-largest producer. The Dow Jones Industrial Average has tumbled into bear-market territory. Gold has rallied 45 percent in the past year, and UBS AG forecast a higher average price for the metal.
``Gold is always a safe-haven asset,'' said Matt Zeman, a metals trader at LaSalle Futures Group Inc. in Chicago. ``You've got inflation, geopolitical risk, extremely high oil prices and a weak economy. All the pieces of the puzzle are there for gold to go higher.''
Gold futures for August delivery climbed $16.20, or 1.7 percent, to $944.50 an ounce on the Comex division of the New York Mercantile Exchange, the highest closing price for a most-active contract since April 16.
Silver futures for September delivery climbed 78 cents, or 4.5 percent, to $18.29 an ounce. It was the biggest percentage gain for a most-active contract since March 5. The metal rose 1.2 percent in the second quarter while gold gained 0.7 percent.
Israel may bomb Iran if the Persian Gulf nation acquires enough uranium to build a weapon, potentially threatening Mideast oil supplies, ABC said, citing a Pentagon official it didn't name. The 30-stock Dow Industrial average fell as much as 1.5 percent, surpassing the 20 percent decline from its recent peak, in October, that can signal the start of a bear market.
Almost a quarter of the world's oil flows through the Strait of Hormuz, a narrow waterway between Iran and Oman at the mouth of the Persian Gulf.
IEA Forecast
Oil futures rose as high as $143.33 a barrel in New York after reaching a record $143.67 yesterday. The International Energy Agency said demand may exceed production through 2013.
``Crude-oil prices remain in the driver's seat in the markets and are still seen as the primary factor impacting the dollar, gold, stocks and readings on inflation,'' Jon Nadler, an analyst at Kitco Minerals & Metals Inc. in Montreal, said in a report.
Gold reached a record $1,033.90 on March 17 as the Federal Reserve reduced U.S. borrowing costs, sending the dollar to an all-time low against the euro and commodities such as corn, wheat and copper to record prices.
The average gold price will be $895 an ounce this year, UBS projected today, up from an earlier forecast of $851.
Rally's Limits
Still, the metal's rally may be limited after seven straight annual gains, analysts said.
``You can't eat gold or put it in your gas tank, so how much more do investors feel there is in this?'' Miguel Perez- Santalla, a vice president at Heraeus Precious Metals Management in New York, said in an e-mail.
Gold will average $800 an ounce next year and $730 in 2010, UBS said.
``With UBS's views that the dollar will firm in 2008, inflation will decline and that the worst of the credit crunch should be felt this year, we expect some of this unusually strong investment demand will slow and even reverse,'' UBS said.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
Last Updated: July 1, 2008 14:24 EDT
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Economic Calendar
Eco Data 7/2/08
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| GMT | Ccy | Events | Actual | Consensus | Previous | Revised |
|---|---|---|---|---|---|---|
| 01:30 | AUD | Australia Retail sales M/M May | 0.10% | -0.20% | | |
| 08:30 | GBP | U.K. PMI construction Jun | 43.1 | 43.9 | | |
| 09:00 | EUR | Eurozone PPI M/M May | 0.90% | 0.80% | | |
| 09:00 | EUR | Eurozone PPI Y/Y May | 6.70% | 6.10% | | |
| 12:15 | USD | U.S. ADP employment Jun | -20.0K | 40.0K | | |
| 14:00 | USD | U.S. Factory orders May | 0.50% | 1.10% | |
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Mid-Day Report: Dollar Remains Pressured Despite Better than Expected ISM
Market Overview | Written by ActionForex.com | Jul 01 08 14:29 GMT |
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Dollar is lifted mildly in early US session after better than ISM manufacturing index but remains generally pressured as oil price is back near $143 a barrel after an IEA report said that supplies would remain tight despite record prices and reduced demands. After 4 months of contractionary reading, the ISM manufacturing index finally recovered back to above 50 at 50.2 in Jun, signaling mild expansion and that the downturn in the economy is, at least, not worsening further. Price paid component surged to 91.5, confirming the underlying upstream inflationary pressure. However, note that the employment component deteriorated further to 43.7, deeper into contraction region, thus countering the positive effect of the headline index. Construction spending dropped -0.4% in Jun, slightly better than expectation of -0.6%.
Technically speaking, there is no sign of short term reversal in the greenback yet. At least, the dollar is still held by near term resistance against major currencies. Though, the greenback does recover impressively against Aussie and Loonie. Elsewhere, yen is still bounded in tight range but so far, yen crosses are still expected to dip further after completing the current consolidation.
Data from Eurozone saw unemployment rate was unchanged climbed slightly to 7.2% in May. PMI manufacturing was revised slightly up to 49.2. Data from Germany were solid, with retail sales climbing 1.3% mom, 0.7% yoy, unemployment rate dropped slightly further to 7.85%, with -38k drop in unemployment count. German PMI manufacturing was also revised up to 52.6 in Jun.
UK PMI manufacturing index dived to 45.8 in Jun, hitting the lowest reading since Dec 2001. Nationwide house price dropped further by -0.8% mom in Jun, with -6.3% yoy fall.
Aussie remains pressured after RBA left rates unchanged at 7.25% as widely expected. More importantly, the accompanying statement sounds confident that "demand growth will be moderate this year," balancing the "concerning" inflation outlook. While inflation is likely to remain "relatively high" in short term on rises in global oil prices, it's believed to decline over time. The statement suggests that interest rates will remain at a 12 year high of 7.25% for considerable period of time.
Japanese Q2 Tankan survey showed confidence among businesses dropped to the lowest in almost five years. Big manufacturer confidence tumbled sharply from 11 to 5 in Q2 but was above consensus of 3. Non-Manufacturing confidence dropped from 12 to 10, also above consensus of 8. Q2 capex rose more than expected by 2.4%.
EUR/USD Mid-Day Outlook
Daily Pivots: (S1) 1.5710; (P) 1.5774; (R1) 1.5816; More
At this moment, EUR/USD is still bounded in consolidative trading inside tight range below 1.5836. With an intraday top in place, further sideway trading could be seen. Nevertheless, further rally is still in favor as long as 1.5718 minor support holds. As discussed before, at this moment, it's uncertain what form of pattern will the consolidation from 1.6019 eventually develop into. 1.5843 remains a key near term focus. Break of this resistance will add favor to the case that consolidation has already completed at 1.5302 and will bring stronger rise to retest 1.6019 record high first. On the downside, below 1.5718 minor support will flip intraday bias back tot he downside for 1.5468 support first. Break will confirm that EUR/USD has started the final leg of triangle towards 1.5302 support to complete the consolidation from 1.6019.
In the bigger picture, a medium term top is in place at 1.6019 after meeting 1.6 psychological resistance. Subsequent sideway consolidation should be close to completion, it not finished already. As mentioned above, above 1.5843 will indicate that such consolidation has completed. Further decisive break of 1.6019 will confirm this case and bring rise to 61.8% projection of 1.4309 to 1.6019 from 1.5284 at 1.6341 first. On the downside, while another setback could still be seen before completing the consolidation, downside should be contained above 1.5302 support. Break of this support level is needed to switch to the case that price actions from 1.6019 are developing into deep correction to test 1.4966 cluster support.
Economic Indicators Update
| GMT | Ccy | Events | Actual | Consensus | Previous | Revised |
|---|---|---|---|---|---|---|
| 23:50 | JPY | Japan Tankan big manufacturing Q2 | 5 | 3 | 11 | |
| 23:50 | JPY | Japan Tankan non-manufacturing Q2 | 10 | 8 | 12 | |
| 23:50 | JPY | Japan Tankan capex Q2 | 2.40% | 2.00% | -1.60% | |
| 04:30 | AUD | RBA rate decision Jul | 7.25% | 7.25% | 7.25% | |
| 06:00 | EUR | Germany Retail sales M/M May | 1.30% | 0.80% | -0.60% | |
| 06:00 | EUR | Germany Retail sales Y/Y May | 0.70% | -1.10% | -1.00% | |
| 06:00 | GBP | U.K. Nationwide hse price M/M Jun | -0.90% | -1.00% | -2.50% | |
| 06:00 | GBP | U.K. Nationwide hse price Y/Y Jun | -6.30% | -6.40% | -4.40% | |
| 07:30 | CHF | Swiss SVME PMI Jun | 54.9 | 55 | 55.7 | |
| 07:55 | EUR | Germany Unemployment rate Jun | 7.85% | 7.90% | 7.90% | |
| 07:55 | EUR | Germany Unemployment change Jun | -38K | -15K | 4K | |
| 08:00 | EUR | Germany PMI manufacturing Jun | 52.6 | 53.3 | 52.3 | |
| 08:00 | EUR | Eurozone PMI manufacturing Jun | 49.2 | 49.1 | 49.1 | |
| 08:30 | GBP | U.K. PMI manufacturing Jun | 45.8 | 49.8 | 50 | |
| 09:00 | EUR | Eurozone Unemployment rate May | 7.20% | 7.10% | 7.10% | |
| 14:00 | USD | U.S. ISM manufacturing Jun | 50.2 | 49 | 49.6 | |
| 14:00 | USD | U.S. Construction spending Jun | -0.40% | -0.60% | -0.40% | |
| Canada Market holiday |
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Daily Report: Yen Extends Recovery, Dollar Soft
Market Overview | Written by ActionForex.com | Jul 01 08 07:03 GMT |
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Aussie extends the pull back from new 25 year high made yesterday after RBA left rates unchanged at 7.25% as widely expected. More importantly, the accompanying statement sounds confident that "demand growth will be moderate this year," balancing the "concerning" inflation outlook. While inflation is likely to remain "relatively high" in short term on rises in global oil prices, it's believed to decline over time. The statement suggests that interest rates will remain at a 12 year high of 7.25% for considerable period of time.
On the other hand, then Japanese yen is trying to regain some momentum on risk aversion after Q2 Tankan survey showed confidence among businesses dropped to the lowest in almost five years. Big manufacturer confidence tumbled sharply from 11 to 5 in Q2 but was above consensus of 3. Non-Manufacturing confidence dropped from 12 to 10, also above consensus of 8. Q2 capex rose more than expected by 2.4%.
Elsewhere, Euro remains steady after stronger than expected May retail sales in Germany, with 1.3% mom, 0.7 % yoy growth. Sterling is also steady against dollar after nationwide house price dropped by -0.9% mom, dragging yoy rate down to -6.3% yoy in Jun.
Markets will cautiously await a number of economic data later today. Particular focus will be on UK PMI manufacturing which is expected to dip into contraction reading of 49.8 in Jun. Eurozone unemployment rate is expected to be unchanged at 7.1%. Eurozone PMI manufacturing is expected to be unchanged at 49.1 in June. Swiss SVME PMI is expected to drop further to 55 in Jun.
Most importantly, market will looking into today's US ISM manufacturing report which is expected to remain below 50 for the fifth consecutive months. On the other hand, price paid component is expected to climb further from 87 to 81. Another focus will be on whether the employment component will stay contractionary for the eight consecutive months.
AUD/USD Daily Outlook
Daily Pivots: (S1) 0.9535; (P) 0.9601; (R1) 0.9650; More
AUD/USD fails to sustain at new 25 year high of 0.9667 and retreats sharply since then. With an intraday top in place, intraday bias is flipped back to the down side for 0.9492 support. though, downside should be contained there and bring another rally. Above 0.9595 minor resistance will bring retest of 0.9667. As discussed before, sustained trading above 0.9653 key resistance will confirm resumption of medium term up trend, targeting 1.0000 psychological resistance.
In the bigger picture, with 0.9291 support intact, followed by break of 0.9653 key medium term resistance, the whole up trend from 0.8512 could have resumed. Regardless of the structure, such rally is treated as part of the long term up trend from 0.4773 (01 low) and is still expected to extend further to next medium term target of 100% projection of 0.4773 to 0.8008 from 0.6773 at 1.0008 which overlaps with parity.
However, the upside momentum since making a low at 0.7675 is still far from being convincing. A break below 0.9327 support will be the first alert that rise from 0.9512, as well as that from 0.7675 has completed. This will set the stage for deeper decline back into 0.7675, 0.8870 support zone, with key long term support of 0.8008 lying in between.
Forex News Digest
- No change to Reserve Bank of Australia's cash target rate of 7.25%
- The Day Ahead Canada & U.S.: ISM Mfg, U. S. Construction Spending, Canada Day
- U.S. Preview: June ISM Manufacturing to Continue in Moderate Decline
- Closing Market Update: Sovereign Spreads Blown Out as U.S. Sits Out Selloff
- Monday's News Recap: Chicago Business Barometer Upbeat, Canadian GDP Rebounds
- Yen Strengthens as Economic Growth Concerns Damp Demand for Higher Yields
- Australian Dollar Declines as Central Bank Says It Expects Moderate Growth
- Manufacturing in U.S. Probably Shrank for Fifth Month as Fuel Costs Jumped
- Dollar May Reach 104.43 Yen Should It Weaken Past 105 Yen, Forecast Says
Economic Indicators Update
| GMT | Ccy | Events | Actual | Consensus | Previous | Revised |
|---|---|---|---|---|---|---|
| 23:50 | JPY | Japan Tankan big manufacturing Q2 | 5 | 3 | 11 | |
| 23:50 | JPY | Japan Tankan non-manufacturing Q2 | 10 | 8 | 12 | |
| 23:50 | JPY | Japan Tankan capex Q2 | 2.40% | 2.00% | -1.60% | |
| 04:30 | AUD | RBA rate decision Jul | 7.25% | 7.25% | 7.25% | |
| 06:00 | EUR | Germany Retail sales M/M May | 1.30% | 0.80% | -0.60% | |
| 06:00 | EUR | Germany Retail sales Y/Y May | 0.70% | -1.10% | -1.00% | |
| 06:00 | GBP | U.K. Nationwide hse price M/M Jun | -0.90% | -1.00% | -2.50% | |
| 06:00 | GBP | U.K. Nationwide hse price Y/Y Jun | -6.30% | -6.40% | -4.40% | |
| 07:30 | CHF | Swiss SVME PMI Jun | 55 | 55.7 | ||
| 07:55 | EUR | Germany Unemployment rate Jun | 7.90% | 7.90% | ||
| 07:55 | EUR | Germany Unemployment change Jun | -15K | 4K | ||
| 08:00 | EUR | Germany PMI manufacturing Jun | 53.3 | 52.3 | ||
| 08:00 | EUR | Eurozone PMI manufacturing Jun | 49.1 | 49.1 | ||
| 08:30 | GBP | U.K. PMI manufacturing Jun | 49.8 | 50 | ||
| 09:00 | EUR | Eurozone Unemployment rate May | 7.10% | 7.10% | ||
| 14:00 | USD | U.S. ISM manufacturing Jun | 49 | 49.6 | ||
| 14:00 | USD | U.S. Construction spending Jun | 49 | 49.6 | ||
| Canada Market holiday |
Read more...
Closing Market Recap: Equity Swings Guide Fixed Income
Market Updates | Written by CEP News | Jul 01 08 20:53 GMT | (CEP News) - The third quarter was off to a tumultuous start as U.S. equities bounced around before closing slightly to the upside. Fixed income was chasing stocks and oil rallied to just shy of a record high before pulling back. Canadian markets were closed for Canada Day.
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U.S. stocks opened lower then got a brief bounce after a key index of U.S. manufacturing improved. But the moves were short-lived because a closer look at the data showed signs of a slowing economy.
June's ISM manufacturing index rebounded to 50.2 from 49.6. The improvement in the index initially boosted stocks, bond yields and the U.S. dollar but a second look showed the employment index falling to its lowest level in five years and prices paid to its highest level since 1979.
"The ISM looked very strong but the details were pretty stagflationary," said Carl Lantz, interest rate strategist at Credit Suisse First Boston.
Stocks got a second lift after major automakers released year-over-year sales figures for June. General Motors said its U.S. sales sank 18.5%, Ford lost 28% and Chrysler plunged 36%. Honda and Volkswagen each gained about 1%.
The General Motors sales were expected to be worse and shares of the company were up more than 3%. The improvement was cited as the reason for a broader market turnaround.
"Who knew that less-crappy GM sales be the catalyst to lift some of the gloom hanging over the US financial markets?" wrote Jamie Coleman, analyst at Thomson FX Hub.
At its lows, the Dow Jones Industrial Average was down 161 points but closed up 32 points to 11,382. The S&P 500 closed up 5 points to 1,285 and the Nasdaq up 12 points to 2,305.
European stock markets closed in negative territory with the Eurostoxx down 56 points to 2,850, the UK FTSE 100 down 146 points to 5,480 and the German DAX down 102 points to 6,316.
Fixed income moved in tandem with stocks. Yields on the U.S. 2-year note traded in a wide range from 2.52%-2.66%.
"The market did little more than trade off of movements in domestic equities," wrote Ian Lyngen, fixed income strategist at RBS Greenwich Capital in a note to clients.
U.S. two-year yields are up 3.2 bps to 2.65%, with five-year yields up 2.7 bps to 3.35%, 10-year yields up 3.3 bps to 4.00% and 30-year yields up 2.5 bps to 4.55%. The Eurodollar September 08 contract is down 2.0 ticks to 97.05. The yield curve is flatter, with the 10/2-year spread down 0.2 bps to 135.01 bps.
In Germany, returns on two-year German bonds are down 2.3 bps to 4.57%, with five-year yields down 1.4 bps to 4.62%, 10-year yields down 1.3 bps to 4.61% and 30-year yields down 2.6 bps to 4.83%.
Yields on UK two-year bonds are down 2.3 bps to 5.20%, with five-year yields down 1.8 bps to 5.16%, 10-year yields up 1.8 bps to 5.15% and 30-year yields up 4.7 bps to 4.73%.
Crude oil rallied more than $3 after the International Energy Agency said supply will rise less than expected by 2013. But traders later took profits when crude failed to hit a new intraday record high.
WTI crude oil was up $0.97 to$ 140.97.
In foreign exchange, the Canadian dollar was down 0.0006 to 0.9782 against the U.S. dollar (1.0222 USD/CAD) and down 0.20 to 103.79 against the yen.
The U.S. dollar was down 0.12 to 106.09 against the yen and the Dollar Index was down 0.083 to 72.380.
The euro was up 0.0044 to 1.5799 against the U.S. dollar, up 0.0058 to 1.6150 against the Canadian dollar, up 0.0010 to 0.7917 against the pound sterling and was higher by 0.28 to 167.61 against the yen.
The pound sterling was up 0.0029 to 1.9952 against the U.S. dollar and up 0.0044 to 2.0395 against the Canadian dollar.
All data taken at 4:42 p.m. EDT.
By Adam Button, abutton@economicnews.ca, edited by Cristina Markham, cmarkham@economicnews.ca
CEP Newswires - CEP News © 2008. All Rights Reserved. www.economicnews.ca
The Copying, Broadcast, Republication or Redistribution of CEP News Content is Expressly Prohibited Without the Prior Written Consent of CEP News.
A copy of CEP News disclaimer can be found at http://www.economicnews.ca/cepnews/wire/disclaimer.
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Tuesday's News Recap: U.S. ISM Mfg Rebounds, U.S. Auto Sales Plunge
News Recap | Written by CEP News | Jul 01 08 20:27 GMT | (CEP News) - The major U.S. release was the ISM manufacturing survey for June, which rebounded into growth mode to a level of 50.2. Weekly retail sales in the U.S. slipped on the week, U.S. construction spending fell further in May and car manufacturers reported sales for June. It was a quiet day in Canada with markets closed to observe the Canada Day holiday.
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The U.S. manufacturing sector halted a four-month trend of deterioration and rebounded into growth mode at 50.2 in June, against expectations of a decline to 48.5, according to the ISM manufacturing survey. Despite the headline advance, prices paid moved up to the highest level since July 1979 and employment fell to its lowest in five years.
"While the PMI indicates minimal change is taking place month over month that is hardly the situation. When viewed from the manufacturer's perspective, they are experiencing higher prices for their inputs while demand for their products is slowing," said Norbert J. Ore, chairman of the ISM Survey Committee.
"This report appears positive enough to shake off some of the bond bullish sentiment of recent sessions," T.J. Marta, a fixed income strategist at RBC Capital Markets, noted after the release. "However, to the extent that outside economies slow, thereby reducing demand for US exports, the extraordinary price pressures are likely to create downward pressure on activity measures such as the ISM in the future."
Major U.S. automakers released year-over-year sales figures for June. General Motors said its U.S. sales sank 18.5%, Ford lost 28% and Chrysler plunged 36%. Honda and Volkswagen each gained about 1%.
According to a report from the U.S. Department of Commerce, construction spending in the United States declined 0.4% month-over-month in May. Residential construction fell by 1.6%, unchanged from April's 1.6 % decrease, while non-residential construction gained 0.3% after rising 0.8 % in the previous month.
Retail sales advanced on a year-over-year basis in the week ending June 28, according to both the International Council of Shopping Centers (ICSC), which showed a 2.2% increase, and Johnson Redbook retail survey, which recorded a 2.9% gain in the week. On a week-to-week basis, sales showed a 0.1% decline in the ICSC report following a 0.6% decline in the previous week.
"There is little driving consumer spending other than staples and basics," said Michael Niemira, chief economist at the ICSC.
In a related release, the Redbook report, which measures 9,000 retail units, has shown a 0.6% loss so far in June compared to May's figures.
An International Energy Agency report said oil supply will rise less-than-expected by 2013. Demand in the developed world is expected to decline because of high oil prices but worldwide demand will increase because of economic expansion in developing countries.
On Monday night, ABC news said quoted an unnamed Pentagon official saying a conflict between Iran and Israel was increasingly likely. On Tuesday, U.S. State Department spokesman Tom Casey responded: "I have no information that would substantiate that, and I think it's rather foolish of people who often have no clue what they're talking about to assert things and not even have the courtesy to do so on the basis of their name."
Speaking to reporters in Berlin after meeting with German Economic Minister Michael Glos on Tuesday, U.S. Treasury Secretary Henry Paulson said Germany and the U.S. are "on the same page" regarding the current subprime mortgage crisis and how to deal with its impacts on the global economy.
There were no releases out of Canada on Tuesday as markets were closed to observe the Canada Day holiday.
Overnight, markets received euro zone unemployment data, which showed the euro zone unemployment rate remaining steady at 7.2% in May against forecasts that it would fall to 7.1%. April's unemployment figure was revised up to 7.2% from 7.1%.
Germany's unemployment rate fell to 7.8% in June, the Federal Labour Agency reported, against economist expectations for the rate to remain unchanged at 7.9%. Meanwhile, the German unemployment rate as measured by the Federal Statistics Office Destatis reported that the rate stayed unchanged at 7.4% in May.
The Euro zone final manufacturing purchasing managers index was also released overnight, which fell to 40.6 in June following May's slip to 50.6. June's reading is the lowest level since May 2005, though economists had forecast a fall to 49.1.
The UK's manufacturing PMI fell to 45.8 in June - its lowest reading since December 2001. Economists had expected an improvement in June with the PMI figure rising to 49.8 after falling to 49.5 in the previous month.
By Stephen Huebl, shuebl@economicnews.ca, with contributions from Patrick McGee, pmcgee@economicnews.ca, Steve Stecyk, sstecyk@economicnews.ca, Todd Wailoo, twailoo@economicnews.ca and Adam Button, abutton@economicnews.ca, edited by Cristina Markham, cmarkham@economicnews.ca
CEP Newswires - CEP News © 2008. All Rights Reserved. www.economicnews.ca
The Copying, Broadcast, Republication or Redistribution of CEP News Content is Expressly Prohibited Without the Prior Written Consent of CEP News.
A copy of CEP News disclaimer can be found at http://www.economicnews.ca/cepnews/wire/disclaimer.
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Big Reversals Lift the US Dollar
Daily Forex Fundamentals | Written by DailyFX | Jul 01 08 21:43 GMT |
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Big Reversals Lift the US Dollar
The US dollar has been driven higher by big reversals in the stock market and in the manufacturing sector. The Dow Jones Industrial Average was down as much as 160 points intraday before it reversed sharply to end the day in positive territory. Part of this strength was due to stronger than expected sales by General Motors. The big fear in the markets today was that Toyota would overtake the GM in sales to the US, but a month end sale and zero percent financing helped the automobile giant hold onto its title. On a day when the manufacturing ISM report blew past the market's expectations, this was not only positive for stocks, but also for the US dollar. Regional indexes all pointed to a very weak nationwide manufacturing report, but for the first time in 5 months, activity the manufacturing sector increased thanks to a rise in inventories and prices paid. The inflation component of the report actually hit a 34 year high due to higher commodity prices. Although we remain skeptical about how well the US economy is doing, today's economic data certainly increases the likelihood of a third quarter rate hike by the Federal Reserve and that is what matters most to currency traders. Oil prices continue to remain stubbornly high with $150 a barrel within an arms reach. Gas prices could hit $5 a gallon by the end of the summer, which would make the Federal Reserve's job even more difficult. This is why we only expect a limited decline in the US dollar against the Japanese Yen because for USD/JPY, the direction of interest rates is clearly in the dollar's favor. For other currency pairs such as the EUR/USD, the outlook for the “interest rate spread” is not as clear, but that may change with the ECB meeting and US non-farm payrolls report on Thursday. Tomorrow we are looking forward to the leading indicators for non-farm payrolls such as the Challenger layoffs report and the ADP Employment report.
Euro: More Reasons to be Hawkish
The Euro remains firm ahead of the ECB meeting on Thursday. Yesterday, the June consumer price index estimate came in at 4% double the central bank's 2% inflation target. Today, Germany reported strong consumer spending and the lowest unemployment rate in 14 years. Manufacturing sector PMI for the Eurozone was also revised higher in the month of June due to stronger activity in France and Germany. The combination of higher inflationary pressures and better than expected economic data could force the ECB to backtrack on their warnings and actually prepare the market up for more than one rate hike in the third quarter. Up until now the ECB has openly hinted that a rate hike in July will one-off, but given the recent reports, 2 rate hikes from the ECB this year is more than realistic. Eurozone producer prices are due for release tomorrow and given the rise in wholesale sales and import prices, we expect the PPI number to be hot. A 50bp rate hike by the ECB on Thursday may not be out of the question. Meanwhile Swiss PMI numbers hit a 3 year low while the prices paid or inflation component of the report jumped to a 1.5 year high.
British Pound Fails to Hold 2.0
For the first time in 2 months, the British pound hit 2.0 against the US dollar. Unfortunately the currency pair failed to hold above this level as weaker economic pushed the currency lower. Manufacturing sector PMI came out much weaker than expected while Nationwide House Prices fell by the fastest pace in 16 years. Governor Mervyn King predicts further downside risks in the housing markets which may be part of the reason why he has been reluctant to raise interest rates. Looking ahead, PMI Construction is largely expected to decline, as the sagging housing market coupled with tight lending conditions continue to be hurdles for construction companies. Other than service sector PMI on Thursday, there is no major UK data on the calendar this week.
Australian Dollar Hit by Dovish RBA Comments and Weak PMI Report
To the surprise of Australian dollar traders, the Reserve Bank of Australia left interest rates unchanged at 7.25 percent and signaled that despite inflationary pressures, they will probably not raise interest rates again this year as demand growth is expected to moderate. This stance is validated by the much weaker than expected manufacturing PMI report - which dropped to the lowest level since November 2005. Australian retail sales and building approvals are due for release this evening. The increase in the sales component of service sector PMI suggests that consumer spending should rise, but RBA Governor Glenn Stevens was particularly concerned about the softness of consumer spending, which makes us skeptical of our typically reliable leading indicator for Australian retail sales.
Japanese Business Confidence Deteriorates but Not as Bad as Feared
Today was a particularly volatile day for Japanese Yen crosses, as the Dow recovered all of its earlier losses. The Quarterly Tankan report was better than expected, but Japanese business confidence still fell to a four year low as the outlook for earnings remain uncertain. This is the third month in a row that confidence has deteriorated. The global economic picture has only worsened in the past three months with oil prices taking a larger bite out of corporate profits. Unlike the other central banks around the world, the currency market is relatively certain that the Bank of Japan will be sitting on their hands for the remainder of the year. This limits good news from helping the Japanese Yen and bad news from hurting it. Labor Cash earnings and Vehicle Sales on the other hand did not manage to beat expectations, as consumer spending slows down to a crawl, due to rising prices.
Disclaimer
Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.
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Yen Gains as European and US Stocks Continue Their Slide; Positive ISM Fails to Revive Greenback
Daily Forex Fundamentals | Written by CMS Forex | Jul 01 08 21:35 GMT |
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AUS RBA Holds Rates at 7.25%, Manufacturing Shows Contraction
In Australia, the central bank held rates at 7.25%. The RBA statement said that financial conditions were tight as a result of moves the Bank had already made, and that credit growth was easing. Also the very tight labor market seems to be slacking. Though inflation will remain high in the short term, the Bank seems to think the current rate is sufficient to bring prices down in the medium term as domestic demand slows. In a separate release, manufacturing activity contracted in June. The PMI fell to 47, continuing a six-month period of softer performance.
JPN Tankan Falls to 4-Year Low, But Still Better Than Feared
In Japan, confidence among manufacturers fell to a 4-year low in the 2nd quarter, with profits set to decline for the first time since the 2001 recession. The manufacturing index fell to 5 points in June, from 11 in March. The services sector declined to a reading of 10. The silver lining is that both indexes were expected to fall even further.
AUD/JPY - Yen Takes a Bite Out of Aussie, Following RBA Decision
Japanese stocks led a slight rally in Asian markets, as the Tankan survey was better than feared, while the Aussie was pressured following its dovish interest rate decision. At one point the Aussie-Yen pair was down 150 pips from its intra-day high, but it found support near 100.20.
UK Housing Prices and Manufacturing Activity Decline in June
In the UK, the price of an average home declined 6.3% in June compared to a year ago. That's the biggest fall since 1992. In addition, manufacturing activity fell into contraction, posting a 45.8, the weakest since 2001. The UK economy is now facing a serious slowdown, though concerns about inflation are pressuring the central bank to keep rates high.
GBP/USD - Pound Reaches $2 For First Time Since April
The Pound-Dollar shrugged off the housing news, as the monthly rate came in better than expected and rallied to touch the 2 to 1 level, for the first time since April. From there, the manufacturing data weighed on the Pound, and the Dollar clawed back some of its losses for the day.
EUR Manufacturing Activity In Contraction
The Euro-zone as a whole saw manufacturing activity also fall into contraction, with the final version of June's PMI falling to 49.2. France, Italy, and Spain all posted multi-year lows while Germany remained above the 50 expansion level. The data however was close to the preliminary estimate from last Monday.
GER Retail Sales Double Forecasts, Improve 1.3% on Month
In Germany, retail sales recovered from 2 months of declines to post a 1.3% increase on the month and a 0.7% rise compared to a year ago. The monthly rate doubled expectations, but with inflation still red hot, and consumer confidence at low levels, it remains to be seen if June's strong sales will continue.
GER Unemployment Rate Falls to 16-Year Low
The unemployment rate for Germany fell to 7.8% in June, a 16-year low. 38,000 Germans were able to find jobs as the labor market remains resilient in the face of the global slowdown.
EUR/JPY - Euro Faces Volatile Action vs Yen, European Stocks Suffer Once More
Despite the better news from Germany, European stocks were sharply lower as financials suffered and geopolitical tensions between Israel and Iran caused oil prices to test $142 a barrel again. The Euro-Yen has been very volatile recently. After yesterday's steep fall, it recovered to 167.30, but fell again overnight. After retesting its low support near 166.20, the Euro rallied once more in NY trading.
US ISM Manufacturing Index Surprises on Upside, Shows Expansion
In the US, the ISM Manufacturing Index was at 50.2 in June, bringing the index into expansion territory after 4 months of readings below 50. Prices continued to accelerate, hitting 91.5, the highest measure since July 1979, as firms deal with higher input costs.
USD/JPY - Dollar Falls to Yen Again as US Stocks Weaken
After getting a boost from the ISM data, US equities fell back into negative territory in the early afternoon, with the Dow Jones index was 130 points a little past noon. The Dollar-Yen pair was weaker overnight and the Dollar's gains from the better than expected ISM release were cut down rather quickly as US equities turned negative.
EUR/USD - Euro Jumps Above 1.58 in NY Trading
The Euro-Dollar pair rose in overnight trading following the better German data. The Dollar was bolstered as a result of the ISM data, but those gains were short lived. Weakening stocks, along with Ford's announcement that sales for June fell 28% gave the Euro the chance to set a new high near 1.5825.
Upcoming Releases
Tonight Australia will post data on retail sales, while overnight the Euro-zone release producer price data. Tomorrow the US will reveal the ADP employment change and post its factory orders.
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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US: ISM Defying Gravity
Daily Forex Fundamentals | Written by Danske Bank | Jul 01 08 16:40 GMT |
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Overview: In June the ISM index rose to 50.2 from 49.2, once again proving more resilient than expected and continuing to indicate that the US manufacturing sector is holding up quite well compared to other sectors of the economy. The price index rose further to 91.5 in June (the highest reading since 1979) from 87.0 in May, reflecting intensifying price pressures in raw material markets.
Details: The details of the survey were mixed. Importantly, though, the strength was not seen in the forwardlooking parts of the survey: both new orders and production were relatively unchanged at, respectively, 49.6 (previously 49.7) and 51.5 (previously 51.2), suggesting the manufacturing sector essentially continues to move sideways. The increase in the composite was mainly driven by higher readings in the index of manufacturers' inventories (51.2 vs. 48.0) and the supplier deliveries index (55.1 vs. 48.0), as employment dipped to a five-year-low of 43.7 (prev. 45.5).
A higher inventory reading was also evident among customers (wholesalers) where the index jumped to 55 from 47. We generally see the higher readings on inventory indexes as an indication of further weakness ahead, as it was not matched by an improvement in the new orders index.
We are somewhat puzzled by the continued rise in the supplier deliveries index. Traditionally, rising delivery times have been used as an indicator of capacity pressures - or underlying strength - in the manufacturing industry. However, this time around it does not fit the overall picture that capacity within the manufacturing sector should be tightening. Hence, we read it more as a reflection of tight global commodity markets and therefore in this sense the index could still be useful as an indicator of underlying inflation pipeline pressures, but probably not as an indicator of underlying strength. Along with the high reading in the price index, it definitely sends a troublesome signal on inflation.
Assessment & Outlook: Even in light of low inventories and strong export demand, we are a bit puzzled about the resilience in the manufacturing ISM. As we mentioned in our preview yesterday, all local indices have been moving lower in June and were pointing to an ISM reading of 48. Moreover, much of the usual dynamics captured by our models suggest that the index should be moving lower as well. Maybe some of the explanation is that the majority of businesses surveyed by the ISM are represented in the export sector.
Going forward, we continue to favour a scenario where the ISM is moving lower during the coming months, as domestic demand is likely to remain soft. Even if the stimulus payments are kicking in faster than expected, it should be some time before they are felt in manufacturing output.
Disclaimer
This publication has been prepared by Danske Markets for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Markets' research analysts are not permitted to invest in securities under coverage in their research sector. This publication is not intended for private customers in the UK or any person in the US. Danske Markets is a division of Danske Bank A/S, which is regulated by FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange. Copyright (©) Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
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