Risk Aversion Prevails Amid Global Growth Concerns - 5.8.2011

US Dollar Asian stocks fell the most since March, extending a global rout, while commodities dropped for an eighth day amid concern the US economic recovery is petering out. The S&P 500 index dropped yesterday by 4.78%, following data that showed manufacturing expanded at the weakest pace in two years, spending unexpectedly fell and the services industries grew at the slowest pace since February 2010. The Dow Jones Industrial Average posted its worst point drop since the financial crisis in December 2008, falling by 4.31%. Nasdaq however turned out to be the worst performer among the tree major indices and fell by 5.08%. Global growth concerns boosted demand for relatively safe assets. Gold prices set a new record yesterday above 1681 dollars per troy ounce. The yield on the 10-year Treasury notes dived to 2.4% on Thursday, the lowest level since October 2010. Japanese Nikkei Stock Average lost almost 4% by the end of the Asian trading session. Investors are mainly focused today on the US macroeconomic data. According to estimations, the economy added 85000 jobs last month, leaving the unemployment rate unchanged at a relatively high level 9.2% after several economic reports showed this week the recovery is slowing. Today’s payrolls figures will follow the June increase of 18000 jobs and the yesterday’s 400000 initial jobless claims report. The dollar skyrocketed yesterday against its major counterparts, except the Swiss franc. Pair USD/CHF is being traded near its record lows (0.7609) despite the Swiss central bank is trying to prevent further strengthening of the national currency. The Dollar index, which tracks the unit against a basket of currencies of six major US trading partners rose yesterday to 75.32, the highest since July 19. Euro The European Central Bank yesterday failed to lower considerably the increasing bond’s yields in Italy and Spain, even as the ECB resumed bond purchases. Italian 10-year bond yields rose to 6.19% yesterday from as low as 5.92% earlier in the day, while the Spanish equivalent soared to 6.27% from 6%, according to Bloomberg data. Yesterday the European Central Bank held its benchmark interest rate unchanged at 1.5%, following the Bank’s of England decision to keep rates at 0.5%. However the ECB President Trichet announced yesterday that the central bank is ready to take additional liquidity measures to cope with the debt crisis. According to the statement, the ECB is disposed to offer banks an unlimited six-month loan and to extend existing measures, which include lending banks as much cash as they need at the benchmark rate, through the end of the year. Trichet reiterated that the central bank will continue to take steps to contain inflation, despite investors lowered their bets that the ECB would not increase rates further this year. As for economic data, a report showed yesterday German factory orders rose by 1.8% in June after a 1.5% increase in May, compared with a relatively los estimations of a 0.2% drop. Today investors will be also watching German industrial production dynamics. The figures are expected to show no growth in June. Pair EUR/USD fell dramatically yesterday from 1.4367 to 1.4088 and remained below the level 1.41 in Asian trading hours today. Australian Dollar The Australian dollar dived yesterday against the US dollar from 1.0779 to 1.0449 and extended therefore its 6-day drop. The Aussie followed other higher-yielding currencies amid broad declines in commodities markets, caused by concern that global economic growth is slowing, while Australia also receives a considerable part of its revenue from exports. Moreover the Central Bank of the country lowered its 2011 average growth from 3.25% predicted in May to 2%. However is expects that consumer prices will accelerate to 3.5% by the end of the year, from a previous prediction of 3.25%, and core inflation will quicken to 3.25% from 3%. The RBA also reported that underlying inflation will remain “relatively high” in 2012 and 2013. Finally, the central bank concluded in its quarterly monetary policy statement released this morning that “conditions are expected to remain very strong in the mining industry, as well as those parts of the economy benefiting from high rates of resource-sector investment, while in other sectors, the high exchange rate and subdued levels of retail spending mean that the trading environment is likely to remain difficult.” Canadian Dollar The Canadian dollar extended this morning its yesterday’s losses against its US counterpart. The currency fell to its lowest level since June 2011 against the greenback on risk aversion, as well as after crude oil prices, Canada’s biggest export, fell below 85 dollars per barrel today. The loonie remains under pressure today despite a government report is expected to show today the nation’s employers added jobs for a fourth straight month. According to estimations, the number of people employed increased by 20000 in July after a 28400 increase in June, while unemployment rate is projected to remain unchanged at 7.4%. Pair USD/CAD gained more than 200 basic points yesterday and rose this morning even more to 0.9826.