* The dollar declined in NY trading Thursday as US stocks reversed earlier losses and closed higher. US Q2 GDP beat market expectations and jobless claims declined. The dollar index fell to 78.06, about 0.5 point above important support. The S&P 500 was up 2.86 points to 1,030.98. The euro rose on improving risk appetite. Germany’s consumer confidence climbed to a 15-month high and consumer prices unexpectedly increased. Sterling gained against the dollar but fell to a new low versus the euro. The Australian and Canadian dollars advanced on a rebound in crude oil prices.
* The USD/JPY fell today. The advantage of borrowing in Japan has diminished as US borrowing cost has fallen. This has reduced carry trades funded in Japan and pressured the pair. The USD/JPY has support from the longer term uptrend. If this is broken, the pair may fall to the 91-area support. There is resistance in the 94- 95 area. Japan’s election will be held on August 30. The latest election polls indicate that the opposition Democratic Party will win, which will introduce new political and economic policy uncertainties.
Financial and Economic News and Comments
US & Canada
* US GDP was unrevised at a -1.0% annualized growth rate in Q2 2009, better than expected, after a -6.4% rate in Q1, preliminary Q2 GDP data from the Commerce Department showed. Q2 GDP contracted 3.9% y/y. Both personal consumption and home building were revised up in Q2; inventories were revised downward. Corporate profits jumped at a 24.9% annual rate in Q2 after rising 22.8% in Q1. The largest drags on Q2 GDP were business investment and inventories, while the largest positive accounts were net exports and government spending. The GDP price index was revised to a 0.0% annualized rate from a previously reported 0.2%.
* US initial jobless claims fell 10,000 to 570,000 and continuing claims dropped 119,000 to 6.133 million, the Labor Department said.
* Germany’s CPI was up 0.2% m/m in August and unchanged y/y, while the harmonized CPI, calculated for European purposes, was up 0.4% m/m and unchanged y/y, preliminary August CPI data from the Federal Statistical Office showed.
* The GfK German sentiment index increased more than expected to 3.7 in September from a downwardly revised 3.4 in August, indicating Germany’s consumer confidence climbed to the highest level since June 2008, according to a report by GfK Group. The economic expectations index improved to -7.5 in September from -14.0 in August. The income expectations index rose to 8.8 from 1.8. The gauge of consumer propensity to buy advanced to 31.1 from 25.1.
* UK house prices rose a more-than-expected 1.6% m/m in August, a fourth consecutive gain and the most since December 2006, to £160,224 ($260,000), after an upwardly revised 1.4% m/m advance in July, figures from Nationwide Building Society showed. August house prices fell 2.7% y/y, slowing the decline rate following July’s 6.2% y/y drop.
* UK business investment fell a more-than-expected 10.4% q/q in Q2 2009, the biggest fall since Q2 1985, after a 7.6% q/q decline in Q1, according to data from the Office for National Statistics. Business investment dropped a more-than-expected 18.4% y/y, the largest decline since records began in 1967, following Q1’s 9.7% y/y decrease.
* Despite further declines in UK retail sales, high street confidence started to stabilize, according to the Confederation of British Industry’s August distributive trades survey. The result showed 34% of retailers said sales volumes increased compared to August 2008, while 51% said they fell, for a balance of -16 following July’s -15. Survey respondents predicted a similar decline in sales in September, for a balance of -14.
* Denmark’s central bank cut its key interest rate to a record-low 1.35% from 1.45%.
* The Conference Board Australian leading economic index rose 0.9% to stand at 113.8 in June, the fourth rise in the last five months, after a revised 0.2% decline in May, the Conference Board reported. The coincident economic index declined 0.1% to stand at 112.5 in June, following revised gains of 0.4% in May and 0.1% in April.
* Australia’s private capital expenditure unexpectedly increased 3.3% q/q in Q2 2009 after a revised 7.3% q/q decline in Q1, according to data from the Australian Bureau of Statistics.
FX Strategy Update