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Japan Foreign-Rating Downgraded by Fitch, Yen Weakens
Britain’s CPI Drops to 3.0% From 3.5%, Net Borrowing at -18.8B
US Dollar vs Canadian Testing New Highs
G8 Summit-Euro Concerns
Canadian Core CPI 0.4%
Dollar Targets at 2012 High; Euro under Pressure
Leading Indicators -0.1%, Philadelphia FED -5.8
Unemployment Claims Unchanged at 370k
Spain GDP Contracts in the First Quarter
FED Release of Meeting Minutes
Market Overview
Japan Foreign-Rating Downgraded by Fitch, Yen Weakens22 May 2012 (12:50)
Fitch Ratings downgraded the sovereign-credit rating of Japan in a surprise announcement as there was limited progress in dealing with the increasing public debt. Japan’s long term foreign currency rating reduced to A+ from AA with a negative outlook. The Yen was under pressure after the announcement of the Fitch and fell against its major counterparties. The US dollar against the Yen rose to the 79.83 level, penetrating the 79.42 resistance earlier today. The Euro versus the Yen rose to 101.93 and found resistance at that level while earlier at the Asia session has been trading at the 101.48.
Britain’s CPI Drops to 3.0% From 3.5%, Net Borrowing at -18.8B22 May 2012 (10:57)
The yearly Consumer Price Index for Great Britain on April unexpectedly reduced to 3.0 per cent compared to the 3.5 per cent in March as the Office for National Statistics reported today, while the expected CPI was 3.1 per cent. The cooling down of inflation in April brings it closer to the target of the Bank of England who had to halt quantitative easing even if the debt crisis in Euro-area worsened. The Core CPI which excludes energy prices and food, the more volatile items, was as well reduced to 2.1 per cent from 2.5 per cent in April. Lastly, the Public Sector Net Borrowing dropped to -18.8 billion of net borrowing in April from the revised 14.6 billion in March, therefore in April, UK is running a budget surplus, however the projected Net Borrowing was at -22.8B.
US Dollar vs Canadian Testing New Highs21 May 2012 (14:22)
The greenback against the Canadian Dollar remains near the previous week's highs, trying to reach fresh high levels. The Canadian dollar lost ground due to increasing risk aversion among traders as the sovereign debt crisis is deepening in Euro area and the political uncertainty remains with the announcement of new elections in Greece. The USDCAD found resistance at the 1.0228 on Friday and then pulled back to the 1.0179 support level. On Monday the US Dollar strengthened and rose to 1.0231 per Canadian for a moment, attempting to establish new 4-month high, it was lastly seen at 1.0225 level. Thin trading characterizes the forex pair as there are no important economic announcements coming from U.S today moreover is a bank holiday in Canada.
G8 Summit-Euro Concerns21 May 2012 (11:08)
The G8 summit was held at the Camp David over the weekend were Obama was the international host, who said that governments must both boost growth and cut the debt as U.S recovery is threatened by the Euro sovereign debt crisis. At the G8 summit it was said that Greece must not exit the euro area, Greeks are preparing for elections again on the June 17 while earlier elections results increased the power for a party opposing the EU’s bailout plan. The two countries major European leaders, German and French meet this week to revise the plan for the Euro, French President Francois Hollande is willing to take growth measures and wants to balance that with Angela Merkel’s preference for spending cuts. Furthermore Spain’s deficit was revised upward and the 10 year Spanish yield bond climbed to 6.26 on Friday. German Finance Minister Wolfgang Schaeuble will discuss a plan for the euro with his French counterpart, Pierre Moscovici today before the European Leader’s summit on the 23rd of May.
Canadian Core CPI 0.4%18 May 2012 (14:53)
Canadian Consumer Price Index rose to 0.4 per cent in April, 0.2 per cent higher than projected and 0.1 per cent more than the previous figure as the Statistics of Canada reported today. The increase in the Inflation measure was mainly due to transportation and clothing costs, energy prices are increasing at slower pace and prices for food increased 2.5 per cent in April. On a yearly basis the Core CPI excluding eight volatile items rose 2.1 per cent in April compared with previous year’s CPI at 1.9 per cent. The Governor of the Bank of Canada Mark Carney reported today it “may become appropriate” to raise the key 1 per cent interest rate, as the inflation and growth are stronger than they were estimated.
Dollar Targets at 2012 High; Euro under Pressure18 May 2012 (08:10)
The euro dropped to a four-month low, extending losses against the dollar in Asian trading hours amid concerns the euro area’s debt crisis is deepening. Pair EUR/USD has already touched 1.2655, the lowest since January 17, while EUR/JPY fell to 100.22, the lowest since February 6. Yesterday the rating agency Fitch downgraded Greece’s long-term credit rating to CCC from B-, indicating “the heightened risk that Greece may not be able to sustain its membership of Economic and Monetary Union” before the nation faces new parliamentary elections in June. Rising borrowing costs for Spain at yesterday’s medium-term auction also added pressure on the single currency. Another international credit agency Moody’s Investors Service downgraded yesterday 16 Spanish banks.
The US dollar on the other hand is accelerating gains against the majors, but the Japanese yen, lifting the dollar’s index, used by Intercontinental Exchange, toward the 2012 high at 81.784. By the end of the Asian trading session the Aussie dropped versus the US counterpart to the lowest since 25 of November 2011 - 0.9794, the British pound weakened to a two-month low of 1.5732. The greenback also strengthened against its northern counterpart, the loonie, to 1.0226, and to 0.9490 versus the Swiss franc – both values are the highest since January. Probably the only major currency outperforming the dollar in May is the Japanese yen. Pair USD/JPY fell yesterday evening to a three-month low of 79.13, having lost almost 0.7% from the beginning of May. The worst performer is the Australian dollar, which has lost almost 6% versus the greenback in May.
Leading Indicators -0.1%, Philadelphia FED -5.817 May 2012 (16:09)
The index of U.S leading indicators dropped by -0.1 per cent in April unexpectedly after advancing for six consecutive months, the forecast was an increase of 0.1 per cent. The latter indicates that the U.S economy is losing momentum as Americans added jobs at a slowest pace, declining building permits and weaker consumer confidence. Philly Fed Manufacturing fell by 5.8 while it was anticipated to increase by 10.8 as the Federal Reserve Bank of Philadelphia reported today, the previous figure was at 8.5.
Unemployment Claims Unchanged at 370k17 May 2012 (14:42)
The initial U.S Jobless Claims are unchanged at 370,000 as the Labor Department reported today and 2,000 higher than the forecast. The previous week claims were revised at 370,000 from 367,000. The number of Americans filed application for unemployment benefits remain stable and that shows no improvement in the labor market, economists say that further growth is needed to bring down the unemployment rate. At the FED meeting minutes release yesterday was made clear that several members said new actions could be needed if the U.S economy loses the positive momentum.
Spain GDP Contracts in the First Quarter17 May 2012 (12:56)
The single currency remains under pressure against the dollar, having touched yesterday a four-month low 1.2681. In Asian trading hours and at the beginning of the European trading session today the pair have been fluctuating around 1.2700 amid Spain’s GDP growth data reading and Spanish debt auction. The official data showed today that the nation’s GDP contracted by 0.3% in the first quarter of the year, following an equal 0.3% drop in the last quarter of 2011. Annualized growth pace reached minus 0.4%, the first drop since the first quarter of 2010, compared with the previous 0.3% annualized gain in the fourth quarter of 2011.
FED Release of Meeting Minutes17 May 2012 (11:53)
The Federal Reserve April 24-25 meeting minutes were released yesterday and the major points reported are that most FOMC members noticed a decline in jobless rate, they saw a decreased inflation rates, they forecast unemployment to be above target at the end of 2014 and that inflation will be below 2% at the end of 2014. Some members were confident about consistent recovery and the FOMC participants said that additional easing may needed if the risks to the economy grow great enough. The main risks for the U.S economy are the Europe’s sovereign debt crisis and the spending cuts accompanied with tax increases which can damage growth. Compared to the previous meeting minutes, only a couple of members supported for further asset purchases. Lastly, FED said that for the rest of the year meetings will be for two days to allow for more discussion.