Loonie and Oil

The dollar is holding steady against the loonie, even with the price of oil jumping above $129 to a new record high.

The petro-dependent loonie rose to a 2-month high of .9873 against the dollar in very early dealing, but has since leveled off at .9910.

 

Technorati Tags: Oil, CAD, Loonie, fvarga

Before the Bell - May 20

Wall Street is still trying to decide what to make of lofty oil prices, but the U.S. government is weighing in this morning.

Stock futures are pointing down ahead of producer price index data that everyone’s going to be watching, given all the worries about inflation. But it was high oil prices that lifted energy companies’ shares yesterday, which in turn pulled up the Dow and the S&P 500.

Other economic reports on tap today include the Chicago Fed national activity index and the ABC/Washington Post weekly consumer comfort index. Fed Gov. Donald Kohn is speaking in New Orleans.

U.S. Treasuries are flat. The dollar has hit a one-month low against an index of six major currencies, in part because of a German think tank’s prediction that euro zone interest rates will rise soon.
Oil is holding steady at around $127 a barrel as it basks in rising demand from China.

Home Depot reported sharply lower profit that nonetheless beat analysts’ expectations. It also left its full-year outlook alone, in contrast to Lowe’s, which cut its forecast yesterday.

Sources say Microsoft has offered to buy a minority stake in Yahoo and buy its search business, stopping short of a full acquisition.

 

Technorati Tags: Analysis, Economy, USA, Stock Market, fvarga

Dollar On The Defensive, Headline PPI up 0.2 percent in April

According to government data released Tuesday morning, US producer prices rose 0.2 percent on-month in April, compared to a rise of 1.1 percent in March.

Analysts were looking for producers prices to rise 0.4 percent in April. On year, PPI was up 6.5 percent.

Core PPI was up 3.0 percent on year in April, above the Fed’s comfort level.

 

Technorati Tags: Analysis, USA, Inflation, fvarga

US dollar gains from 2-week low against Taiwan currency

The US dollar declined to a 2-week low of 30.4320 against the Taiwan currency before gaining ground by about 9.10pm Eastern Time. The pair that closed Monday’s New York session deals at 30.5445 is currently quoted at 30.58.

 

Technorati Tags: Currencies, USD, TWD, fvarga

German ZEW Economic Sentiment In May Weakens For Second Straight Month

German economic sentiment for May deteriorated for the second straight month, a monthly survey by the Center for European Economic Research, or ZEW showed Tuesday.

               

The economic sentiment index dropped 0.7 points to minus 41.4 in May. The indicator stayed well below its historical average of 29.6 points and the expected level of minus 37.

According to the survey, economic sentiment was influenced by high inflationary risks and economic expectations for the U.S. in the coming six months.

Meanwhile, assessment of the current economic situation improved in May. The indicator increased 5.4 points to 38.6 points. Economists had expected a level of 32.

ZEW President, Wolfgang Franz said, “German firms were very successful in the first quarter of 2008. However, the economic momentum should gradually loose speed because of increasing refinancing costs and a strong euro.”

The index measuring economic expectations for the euro zone came in at minus 43.6 points, up 1.2 points. On the other hand, the current economic situation eased 4.1 points to 11.4.

In the first quarter of 2008, German economic growth accelerated to a 12-year high, led by increased investment and pick up in consumer spending. The gross domestic product grew 1.5% quarter-on-quarter. This was a significant improvement over the 0.3% expansion witnessed in the final quarter of last year.

Frédérique Cerisier, an economist at BNP Paribas said that the survey is in line with the common view that activity remained remarkably strong in Germany but the outlook for both foreign and domestic demand implies a sharp deceleration in the coming quarters.

Earlier in the month, a report from the Federal Ministry of Economics and Technology, or BMWI had revealed that the German economy was set to slow in the coming months as the strong euro and a weak global economy weigh on growth.

The Federal Statistical said, extending evidence of rising inflationary pressures, German producer prices rose more than expected in April led by energy costs, marking its fastest pace in nearly two years. Producer prices grew at a pace of 5.2% year-on-year in April, much faster than 4.7% as expected before.

Wolfgang Franz reportedly said that the European Central Bank would have to ignore the weakness in the economy and increase interest rate to contain inflation.

 

Technorati Tags: Analysis, Europe, Germany, Economy, fvarga

Euro Rallies Despite Weaker ZEW

After German Producer Prices increased at the fastest pace in 2 years, EURUSD recouped all of yesterday’s losses in early European trade but the rally was temporarily stymied by worse than expected reading from the ZEW survey indicating concern about future growth from the region’s investment analysts.

The correction however, lasted all of 10 minutes as the pair skyrocketed once again after ZEW officials predicted that ECB  will hike rates in the near future.

German PPI printed at 1.1% -far hotter than the 0.5% expected as the spike in energy costs continued to disperse   inflationary pressures throughout the system.

The EURUSD gained steadily throughout  the night on anticipation of better than forecast Zew readings but the actual report produced mixed results with sentiment dropping to –41.7 while current conditions improved to 38.6 from the 32.0.

The real kicker of the night however was the comment by Wolfgang Franz, head of the Mannheim-based ZEW stating that, “I think the ECB will raise interest rates in the near future”.

For a market mildly positioned for a possible ECB rate cut as early as Q3 of this year, Mr. Franz’s words came as a shock triggering a stampede of short covering as traders tried to reassess their views of future monetary policy in the Euro-zone.

Whether ECB will actually tighten further this year remains an open question, but given tonight’s hot PPI numbers and hawkish comments from Zew officials at the very least it appears quite unlikely that the ECB will consider a rate cut anytime in the near future.

The case for a weaker euro has been predicated on the idea of substantial deceleration in EZ economic growth. However the slowdown in demand has been relatively modest while inflationary pressures in the region have been unremitting and brutal.

Tomorrow’s IFO report may hold the key to near term direction for the pair. If the data prints within expectations or better the EURUSD rally could easily continue as ECB uncompromisingly hawkish monetary policy will likely remain in place for the foreseeable future.

 

Technorati Tags: Europe, Euro, Currencies, Forex, fvarga