Weakness overnight in Asian stocks amid continued signs of deepening recession generated demand for the Japanese yen, which gained ground to ¥97.07 against the dollar and ¥124.32 against the euro. A slightly more positive tone how American consumers are holding up in the face of rising joblessness and growing negative equity has also boosted the appeal of the dollar, which has risen to $1.2784 against the euro today. Elsewhere a halving of the Swiss target rate to 0.25% and a statement that the SNB will buy currencies in efforts to thwart the strength of a rising Swiss franc has sent the unit sliding today to $1.1900 against the dollar, almost 4 cents weaker than on Wednesday.
We’re amazed at the ongoing ability of the euro to seemingly defy gravity. German industrial output declined the most on record and fell close to 20% year-on-year in January according to data released today. And while corporate profits continue to weigh on stocks faced with a harsh economic climate we are stunned by data compiled today By Bloomberg News, which compares the impact on corporate profits during the past two months in the United States versus Europe. According to their data, of the 278 companies among the DJ Stoxx 600 reporting since January 12, profits have contracted 95 percent. That stacks up against a 58% contraction among the 472 S&P 500 index members reporting at the same time. We noted earlier in the week that the United Kingdom was being punished for its transparency in showing the world its internal surgery. The Eurozone, on the other hand, lays on the table awaiting the surgeon to make his first incision.
The dollar took a better tone after retail sales data showed a better performance by the consumer. While the ex-auto number showed an unexpected rise of 0.7% for February over January, although excluding gasoline, which has risen in price over the month, sales contracted b 0.4%. The 4.3% monthly slump in auto sales was the biggest since October. Optimists seem happy to take this data along with chirpy anecdotal evidence from JPMorgan and Citigroup about profits for the first two months of the year as a confirming sign that the darkest days are behind us. However, the fact that jobless claims registered the sixth consecutive reading above 600,000 continues to weigh against this argument as 5.317 million people continue to claim unemployment benefits.
While the central banks in Switzerland and New Zealand have eased policy once again today, there remain few signs of global recovery. Asian and European stocks were lower as investors reacted to more gloomy corporate profits news, while Australia revealed a 5.2% jobless rate for February with the largest number of laid off workers since 1991 as 53,800 employees lost jobs. Job advertisements in print and appearing on the Internet were 10% lower in February compared to one year ago. The 5.2% headline rate is the highest in four years and prompted a decline in the value of the Aussie dollar to 64.50 U.S. cents. It also slipped against the Japanese yen to ¥63.12.
The British pound continues to weaken against the dollar at $1.3734 and almost 93 pennies against the euro. The onset of gilt purchases courtesy of the monetary printing press has begun and with weakening stock market prices conveying a negative message about the deteriorating health of the economy, investors appear to be lethargic on the matter of direct investment in Britain.
Implied currency options volatility continues to ease given the fact that trading ranges are meeting few challenges. The ease of equity volatility at fresh lows and the fact that lower stock prices hasn’t accelerated dollar demand has taken some pressure off currency option prices.