- The dollar and yen rose on Friday after US consumer confidence unexpectedly fell and US stocks declined. US industrial production rose while the decline in the eurozone and US annual inflation rates indicated inflationary concerns are premature. The S&P 500 declined 8.64 points to 1,004.09. Treasury yields dropped as faltering consumer confidence and tame inflation damped optimism of a quick economic recovery. The dollar index rose to 78.78, still near this year's low and the critical 77.50-area support. The European currencies fell on increased risk aversion. The Australian and Canadian dollars reversed overnight gains as energy and commodity prices plunged.
- Following Monday's failed attempt to break the resistance from the downtrend, the USD/JPY declined this week as risk aversion increased. The pair broke the short-term uptrend today but closed above the 94-area support. The yen has been the primary beneficiary of safe-haven-related trades. A further consolidation in equity markets will further appreciate the yen.
Financial and Economic News and Comments
US & Canada
- US consumer prices were unchanged in July, in line with market expectations, after a 0.7% m/m advance in June, according to CPI data from the Labor Department. July CPI fell 2.1% y/y, the largest 12-month fall since January 1950. Energy prices declined 0.4% m/m in July, down 28.1% y/y. Gasoline prices decreased 0.8% m/m in July, while food prices slipped 0.3% m/m. The core CPI, which excludes food and energy prices, was up 0.1% m/m in July, also in line with market expectations, after a 0.2% m/m increase in June. July core CPI rose 1.5% y/y.
- US industrial production increased a slightly more-than-expected 0.5% m/m in July, the first gain since October 2008, after a 0.4% m/m decline in June, data from the Federal Reserve showed. Aside from a hurricanerelated rebound in October 2008, the gain in July marked the first monthly increase since December 2007, the Fed said. July industrial production fell 13.1% y/y. Capacity utilization climbed to 68.5% from June's upwardly revised 68.1%. Manufacturing production was up 1.0% m/m in July after a 0.6% m/m slide in June. Most of the increase was auto-related as motor vehicle/parts production jumped 20.1% m/m in July. Manufacturing capacity utilization rose to 65.4% from June's upwardly revised 64.7%.
- The Reuters/University of Michigan US consumer sentiment preliminary index for August unexpectedly declined to 63.2 from July's 66.0, indicating US consumer confidence fell to the lowest level since March but improved from a 3-decade-low 55.3 in November, a report by Reuters and University of Michigan showed. The current conditions index fell to 64.9 in August from 70.5 in July. The consumer expectations index slid to 62.1 from July's 63.2.
- Canada's manufacturing sales unexpectedly gained 1.9% m/m to C$39.7 billion ($36.5 billion) in June after a revised 4.9% m/m decline in May, driven by strong sales in the aerospace industry and an increase in the price of petroleum and coal products, according to figures from Statistics Canada.
- Eurozone consumer prices declined a slightly more-than-expected 0.7% m/m in July after a 0.2% m/m increase in June, CPI data released by Eurostat showed. The consumer-price inflation rate was -0.7% y/y, a record low, down from June's -0.1% y/y. The core CPI rate eased as forecast to 1.3% y/y in July, the lowest in three years, from 1.4% y/y in June.
- Japan's tertiary industry activity index unexpectedly increased 0.1% m/m to 96.1 in June after a revised 0.3% m/m decline in May, according to data from the Ministry of Economy, Trade and Industry. Industries contributing to the increase included: 1) scientific research, professional and technical services; 2) finance and insurance; 3) medical, health care and welfare; 4) miscellaneous services; and 5) transport and postal activities.
- The Bank of Japan may extend its emergency credit programs into 2010, depending on whether Japan's financial conditions improve enough, minutes of the July 14-15 BOJ meeting showed. Some members said that further improvement in the situation would justify termination of the measures or a review for possible revisions at the year-end -- when the extended effective periods expired -- but another extension might become necessary if the Bank's judgment was that the situation had not improved sufficiently, the minutes read.
- Reserve Bank of Australia Governor Glenn Stevens, in his semi-annual testimony to parliament's economics committee, signaled the RBA may raise the benchmark interest rate as Australia's economic conditions are improving. Stevens said: There will come a time when the exceptional monetary stimulus in place at present will no longer be needed. It will then be appropriate for the Board to do what it has done on past such occasions, namely to start adjusting interest rates back towards normal levels. The timing and pace of those adjustments, if and when they come, will be a matter of careful consideration, taking into account all the relevant factors, including what might be happening with market interest rates. He also stated that Australia's economy is weathering a very large storm pretty well, and the community's confidence about the future has improved commensurately.
FX Strategy Update