The USD$ is stronger in the O/N trading session. Currently it is higher against 12 of the 16 most actively traded currencies in another Ã¢â‚¬ËœwhippyÃ¢â‚¬â„¢ trading range.
The US economy still cannot decide if it wants to be in a recession or not. Yesterday, data showed that the US economy grew more than previously estimated for the 1st Q, as Americans bought fewer goods from abroad, thus shrinking the trade deficit to a new 5-year low (+0.9% vs. +0.6%). The mix between demand and supply was less concerning than before, fitting with the Ã¢â‚¬Ëœnot-as-badÃ¢â‚¬â„¢ theme of recent economic reports. Final sales (demand) were revised up to +0.7% from -0.2%, which was helped by a smaller trade gap and more commercial construction. Inventories (supply) were revised down to -$14.4b from $1.8b. Hence, trade remains the bright spot for an economy that will slow in the 2nd Q as surging fuel and food bills and falling home values force consumers to cut back. Other reports supported this slowdown, initial claims for unemployment insurance was higher than analysts had anticipated, first-time claims rose to +372k vs. +368k w/w. The labor market is still loosening for now, next weeks NFP may provide a bigger headache than previously anticipated. The greenback continues to find support vs. all its major trading partners and will remain up on the week, the first time in many.
The US $ currently is higher against the EUR -0.22%, GBP -0.27%, CHF -0.12% and lower against JPY +0.1%. The commodity currencies are weaker this morning, CAD -0.27% and AUD -0.18%. Despite commodity prices falling off a cliff yesterday, the loonie found support from Canada’s current account data which took even the most optimistic analyst by surprise. The overall surplus almost doubled expectations at +$5.6b in the 1st Q. Commodity prices drove most of it, via a higher than expected goods surplus. But, auto exports sank to the lowest level in a dozen years. Digging deeper one noticed that travel spending deficit dipped lower, this figure is truly a misnomer as a higher percentage of Canadians do more of their cross border shopping via the internet. Commodities such as gold and crude oil account for 54% of Canadian exports. With the similar global theme, traders are starting to speculate that rising inflation will keep the BOC from cutting interest rates (3.00%) at their meeting on June 10th. Expect this mornings GDP to provide further surprises. Traders are looking for better opportunities to sell the loonie. The AUD$ has under-performed this week on signs that growth is slowing as prices of the commodities it exports declined (0.9562).
Crude is lower O/N ($125.43 down -119c). Crude oil prices commenced its decline yesterday when the EIA weekly report said that the biggest drop in US oil inventories in more than 3-yeras was caused by Ã¢â‚¬Ëœtemporary delaysÃ¢â‚¬â„¢ in unloading oil tankers on the Gulf Coast. Supplies declined -8.88m barrels to 311.6 million last week, the biggest drop since Hurricane Ivan forced the closing of oil platforms in the Gulf of Mexico (The EIA provided a disclaimer in the text-decline was due to temporary delays in the Gulf but the import numbers were not down by much). The market should not be surprised to receive a large inventory build up in next weeks report. Earlier this week the market started to see some panic liquidation of commodities as the Ã¢â‚¬ËœAnti-investment Anti-speculationÃ¢â‚¬â„¢ focus of the US Govt. moved to the fore. The head of the Senate Energy Committee in the US wrote an open letter demanding that the CFTC answer sensitive questions about speculations in US energy markets by June 10 (one should expect further liquidation of large long positions held in US energy markets). The appreciation of the greenback vs. the EUR also took some of the luster off commodity prices. A concern about further militant attacks in Nigeria that may disrupt supplies has once again provided a strong under current bid. The market technically has found the strong resistance point at $135 a barrel. Gold continues to tumble ($881) as the greenback gained some support vs. the EUR thus reducing demand as an alternative investment.
The Nikkei closed at 14,338 up +214. The DAX index in Europe was at 7,092 up +37; the FTSE (UK) currently is 6,074 up +6. The early call for the open of key US indices is higher. Yields of the US 10-year bond backed up 15bp yesterday (4.15%) and are little changed O/N. Treasuries declined pushing yields to the their highest levels since Dec. after data reveled that the US economy grew at a faster pace in the 1st Q than it was originally estimated.
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