by GCI Financial Team GCI
EURO The
euro came off vis-à-vis the U.S. dollar today as the single currency
tested bids around the US$ 1.4000 figure and was capped around the
$1.4150 level. Three main factors contributed to the sell-off in the
common currency. First, EMU-16 May M3 money supply growth registered a
twelve-year low with growth in loans to the private sector slowing to
+1.8% from +2.4% in April. Overall credit growth decelerated to +4.0%
from +4.4% in April. These data suggest that the fiscal and monetary
stimuli being created in the eurozone are not reaching companies and
consumers with banks apparently hording a lot of the liquidity.
Second, EMU-16 consumer prices were off year-over-year in June, the
first negative reading since at least January 1997. Eurozone CPI was
off 0.1% y/y but this decline was less than expected and was
anticipated by the European Central Bank on account of base year
effects. Furthermore, the ECB is forecasting consumer price inflation
costs will begin to rise again by the end of the year. Nonetheless,
today’s data suggest the ECB will not necessarily be in any hurry to
lift borrowing costs further. Third, Germany’s labour market continued
to weaken this month with the number of jobless now around 3.410
million and the unemployment rate at 8.3%. Some economists believe the
number of unemployed workers may eclipse the politically-sensitive 4.0
million barrier by the end of 2009. In U.S. news, many economic data
were released. First, June consumer confidence printed at 49.3, down
from a revised 54.8 in June and worse than expected. Second, the June
Chicago Purchasing Managers’ index improved to 39.9 from 34.9 in May
with improvements in the production, inventories, employment, and
prices paid sub-indices. Third, the S&P/ CaseShiller home price
incex fell to 139.18 in April from a revised 139.97 in March with
composite home prices off 18.12% y/y from a revised -18.72% y/y in
March. The big news in the U.S. this week will be the June non-farm
payrolls data that will be released on Thursday. Euro bids are cited
around the US$ 1.3435 level. JPY / CNY The
yen depreciated vis-à-vis the U.S. dollar today as the greenback tested
offers around the ¥96.50 level and was supported around the ¥95.30
level. Prime Minister Aso reported Bank of Japan’s monetary policy is
not as effective during a recession where there are deflationary
pressures evident. Finance minister Yosano said one cannot assume bond
yields will remain this low, especially when drafting the budget for
the next fiscal year. Yosano added the budget ceiling for the next
fiscal year will be a record ¥52.7 trillion and said the impact of
fiscal and monetary stimuli on the Japanese economy are not fully
known. Additionally, Yosano said the government is significantly
concerned about unemployment. It was reported overnight that the May
unemployment rate ticked up to 5.2% from 5.0% in April while May
household spending were up +0.3% m/m and off 1.3% y/y. Moreover, May
overall housing starts were down a drastic 30.8% y/y and total May
construction orders were off a staggering 41.9% y/y to ¥454.8 billion.
The Nikkei 225 stock index climbed 1.79% to close at ¥9,958.44. U.S.
dollar offers are cited around the ¥104.15 level. The euro weakened
vis-à-vis the yen as the single currency tested bids around the ¥134.35
level and was capped the ¥135.95 level. The British pound moved higher
vis-à-vis the yen as sterling tested bids around the ¥158.20 level
while the Swiss franc moved lower vis-à-vis the yen and tested bids
around the ¥88.10 level. In Chinese news, the U.S. dollar moved lower
vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8295 in the
over-the-counter market, down from CNY 6.8325. STERLING The
British pound depreciated vis-à-vis the U.S. dollar today as cable
tested bids around the US$ 1.6420 level and was capped around the
$1.6745 level. Bank of England Deputy Governor Tucker today indicated
banks need to “radically simplify their structures and provide more
information about what funds they would use in an emergency.” The U.K.
Treasury today reported the BoE and the Financial Services Authority
will obtain new powers to help prevent future crises. There has been
widespread media reports over the past couple of days indicating the
U.K. Treasury will not change the central bank’s mandate to keep
inflation under control but will give the FSA new powers to control
banks’ balance sheets. Data released in the U.K. today saw the Q1
current account deficit narrow to -₤8.5 billion from -₤8.8 billion in
Q4. Also, Q1 gross domestic product was off 2.4% q/q and 4.9% y/y, the
largest decline in 50 years, while Q1 total business investment was off
7.6% q/q and 9.7% y/y. Additionally, Nationwide reported June house
prices were up 0.9% m/m and off 9.3% y/y. Cable bids are cited around
the US$ 1.6125 level. The euro moved higher vis-à-vis the British
pound as the single currency tested offers around the ₤0.8535 level and
was supported around the ₤0.8435 level. SWISS The
Swiss franc depreciated vis-à-vis the U.S. dollar today as the
greenback tested bids around the CHF 1.0775 level and was capped around
the CHF 1.0890 level. Technically, today’s intraday low was right
around the 61.8% retracement of the move from CHF 1.0630 to CHF
1.1020. Data released in Switzerland today saw the UBS May consumption
indicator decline to 0.77 from 0.91 in April. U.S. dollar offers are
cited around the CHF 1.1165 level. The euro weakened vis-à-vis the
Swiss franc as the single currency tested bids around the CHF 1.5230
level while the British pound moved lower vis-à-vis the Swiss franc and
tested bids around the CHF 1.7855 level.
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