The dichotomy between the PIIGS countries and Germany and France is striking, as the former bloc is struggling with soaring deficits, and the latter two countries are thriving. Today’s news from the region is indicative of these differences.
First the good: the German Jobless rate fell to the lowest levels since 1992 as exports picked up driving industry, likely due to a weaker Euro. In addition, CPI data rose 1.8%, meeting analyst expectations.
Now the bad: Moody’s downgraded Spain’s debt rating one-notch, citing a weak economic outlook but giving a stable rating. There was concern that the rating would be dropped three notches and closer to junk status.
And finally the ugly: Ireland is preparing to fully bail-out its banks to the tune of 50 billion Euros, but is still insisting that they will not need to access the EU emergency lending facility.
Believe it or not, this all adds up to a mostly positive Euro today, as the uncertainty over these situations has mitigated and the fact that the German economy is still rocking.
Here in the US, GDP figures came in at 1.7% highlighting a slower pace of expansion. Initial jobless claims came in better than expected, though the difference is marginal in the grand scheme of things.
In Canada, GDP figures came in at -.1% as expected, the first time the Canadian economy has shrank in nearly a year.
In Japan, industrial production fell .3% vs. an expectation of a 1.1% gain which highlights how Yen appreciation is affecting Japanese companies. This sent the Nikkei average plummeting down roughly 2% which in turn—you guessed it—caused the Yen to strengthen further.
This started the morning off in risk-aversion mode, but the sentiment is shifting as the economic data today is slightly positive. So we are looking at a higher opening here in the US for stocks, with European markets positive and commodities higher.
In the forex market:
Aussie (AUD): The Aussie is mixed today as Dollar weakness and Yen strength are playing tug-of-war with the currency. Building approvals fell 4.7% and consumer credit fell short of expectations. Nevertheless, the banking sector showed considerable strength as profits were up nearly 15%.
Kiwi (NZD): The Kiwi is following the same pattern as the Aussie as it is sometimes expected to due. Business confidence figures fell to 14 month lows, taking the prospect of another rate hike almost entirely off of the table.
Loonie (CAD): Canada reported negative GDP so the Loonie is weaker, right? Wrong. The Loonie is actually higher this morning, as the slight loss of economic output was expected by the market. In addition, oil prices are higher on Dollar weakness, so the Loonie benefits. (Click chart to enlarge)
Euro (EUR): The Euro is also mixed this morning on the news mentioned earlier as well as anti-Dollar sentiment.
Pound (GBP): The Pound is also mixed as consumer confidence came in lower than expected as austerity measure coming down the pike have consumers worried. This has caused policy-maker Posen to posit that further QE may be needed, but this is likely just jaw-boning the pound lower in the face of Dollar weakness.
Dollar (USD): The Dollar is once again the biggest loser as the threat of QE2 is looming heavily on the markets as GDP figures show slowing growth and initial jobless claims while better than expected still leave much to be desired.
Yen (JPY): The Yen is higher almost across the board as industrial production and retail trade figures came in worse than expected. Those figures drove the Nikkei lower and caused the Yen to strengthen, and USD/JPY is getting much closer to original intervention levels. Will the BOJ intervene again? Or have they already given up after a futile attempt in the face of dollar weakness. Stay tuned. (Click chart to enlarge)
Wow, busy morning today!
There is a lot of seemingly conflicting reports happening but I think the major theme to watch is Dollar weakness and Yen strength. Once again the market is going to test the BOJ and the threat of QE2 in the US is the elephant in the room.
Meanwhile, the Euro zone split between the “haves” and “have-nots” is widening and strikes around the region confirm the displeasure with this dynamic.
Unfortunately, I didn’t even have time to pontificate upon the passing the Chinese Yuan currency manipulation bill that passed in the US House, which is likely to heat up a major trade war if it passes the Senate.
Are we having fun yet?
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