The Dollar Rises Into a Release of Economic Data

“The dollar strengthened before reports economists said will show manufacturing in the Philadelphia region expanded, while first-time jobless claims were near the lowest since January 2008.

The U.S. currency rose against all its 16 major counterparts after Federal Reserve Bank of Philadelphia President Charles Plosser said he favors phasing out the central bank’s asset purchases. The euro weakened for a sixth day against the greenback, the longest losing streak in 12 months, after a report confirmed consumer-price inflation in the region slowed to the least in three years in April. Australia’s dollar slid to an 11-month low as commodity prices declined.

“There’s been a change in expectations with respect to the dollar,” said Jane Foley, a senior currency strategist at Rabobank International in London. “May has brought news which is more constructive. If the U.S. continues notching better growth data, it brings in the likelihood that the Fed will start paring its asset purchases.”

The dollar rose 0.4 percent to 102.68 yen at 7 a.m. in New Yorkafter climbing to 102.76 yesterday, the strongest since October 2008. The U.S. currency appreciated 0.2 percent to $1.2867 per euro after reaching $1.2843 yesterday, the strongest since April 4. The six-day gain is the longest since May 2012. The single currency advanced 0.3 percent to 132.11 yen.

Manufacturing Expands

The Fed Bank of Philadelphia’s general economic index rose to 2 in May from 1.3 the prior month, according to the median estimate of economists in a Bloomberg survey. Initial jobless claims were at 330,000 in the week through May 11, U.S. Labor Department data will say today, a separate Bloomberg survey showed. That compares with a reading of 323,000 a week earlier, the least since January 2008….”

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“Japan’s economy expanded the most in a year last quarter as consumer spending and export gains outweighed the weakest business investment since the wake of the March 2011 earthquake and tsunami.

Gross domestic product rose an annualized 3.5 percent, a Cabinet Office release showed inTokyo. Private consumption, making up 60 percent of GDP, contributed 2.3 percentage points to the jump. The BOJ may upgrade its assessment of the economy after a May 22 policy meeting, according to people familiar with the central bank’s discussions.

Today’s report shows while consumers — aided by a stock-market surge — are responding to the reflation campaign mounted by Prime Minister Shinzo Abe and Bank of Japan chief Haruhiko Kuroda, companies remain cautious. That may change as the yen’s 21 percent slide against the dollar in the past six months spurs profits and Abe embarks on reducing regulations hampering the world’s third-biggest economy.

“Japan is clearly back from stagnation last year,” said Naoki Iizuka, an economist at Citigroup Inc. in Tokyo. “The key from here is whether Abe can unveil a strong growth strategy. If he succeeds, that will boost business investment to support growth.”

Abe plans next month to unveil his so-called third arrow of structural reform, following the first two arrows of monetary and fiscal stimulus.

Exceeding Estimates…”

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“According to European Central Bank Governing Council member Ewald Nowotny, Federal Reserve Chairman Ben Bernanke sees no risk of inflation in the United States. According to Nowotny, Bernanke had given a “very optimistic” portrayal of the US outlook.

“They see absolutely no danger of an expansion in inflation,” Nowotny said. Bernanke had said US inflation should be 1.3 percent this year.

Fed forecasts put inflation by the end of this year in a range of 1.3 to 1.7 percent. The yearly rate of growth of the consumer price index (CPI) stood at 1.5 percent in March against 2 percent in February and 2.7 percent in March last year.

Also the growth momentum of the core CPI (the CPI less food and energy) has eased in March from the month before. Year-on-year the rate of growth has softened to 1.9 percent from 2 percent in February and 2.3 percent in March last year.

For Bernanke and most experts, the key factor that sets the foundation for healthy economic fundamentals is a stable price level as depicted by the consumer price index.

According to this way of thinking, a stable price level doesn’t obscure the visibility of the relative changes in the prices of goods and services, but enables businesses to see clearly market signals that are conveyed by the relative changes in the prices of goods and services. Consequently, it is held, this leads to the efficient use of the economy’s scarce resources and hence results in better economic fundamentals.

For instance, let us say that a relative strengthening in people’s demand for potatoes versus tomatoes took place. This relative strengthening, it is held, is going to be depicted by the relative increase in the prices of potatoes versus tomatoes.

Now in a free market, businesses pay attention to consumer wishes as manifested by changes in the relative prices of goods and services. Failing to abide by consumer wishes will lead to the wrong production mix of goods and services and will lead to losses.

Hence in our case businesses, by paying attention to relative changes in prices, are likely to increase the production of potatoes versus tomatoes.

According to this way of thinking, if the price level is not stable, then the visibility of the relative price changes becomes blurred and consequently, businesses cannot ascertain the relative changes in the demand for goods and services and make correct production decisions.

This leads to a misallocation of resources and to the weakening of economic fundamentals. In short, unstable changes in the price level obscure changes in the relative prices of goods and services. Consequently, businesses will find it difficult to recognize a change in relative prices when the price level is unstable.

Based on this way of thinking it is not surprising that the mandate of the central bank is to pursue policies that will bring price stability, i.e., a stable price level…..”

“Top officials at the International Monetary Fund on Tuesday challenged financial regulators imposing far-reaching reforms on the biggest banks, arguing that the global benefits of reform efforts must outweigh their costs.

Officials including José Viñals, financial counsellor and director of the IMF’s monetary and capital markets department,said in a paper that initiatives such as the Volcker rule in the U.S. and similar proposals in Europe could impose significant costs on the global economy, such as reduced liquidity in financial markets. They could also increase the risk that financial activity will migrate to institutions, sectors or jurisdictions subject to less supervision, the paper said.

The warning comes as U.S. regulators attempt to finalize various proposals, including the one named after Paul Volcker, the former Federal Reserve chairman, which bans banks from trading for their own profit and significantly restricts their investments in risky ventures such as hedge funds and private-equity firms. Another pending rule threatens to raise costs for foreign banks by ratcheting up their capital requirements.

The IMF staff paper may buttress arguments made by foreign regulators and officials who have complained about proposals they say could harm foreign banks or drive up sovereign borrowing costs because leading U.S. banks may limit their activities.

But the IMF paper stops short of fully endorsing claims made by these authorities, including those from Germany and Japan. Instead, the IMF officials said that national proposals to restructure large banks, limit their activities or heighten requirements on foreign banks may be justified if regulators are unable to effectively supervise complex financial institutions or if foreign officials refuse to rein in banks considered to be “too important to fail”….”

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“NEW YORK — Huxley Sommerville, group managing director at Fitch Ratings, increasingly fears another massive financial crisis. Ask him why and he tells the story of a recent deal his credit rating agency failed to secure.

Last month, a group of Citigroup bankers contacted Fitch’s New York headquarters, hoping to convince its analysts to deliver their seal of approval for a bond issue. In essence, Citi needed Fitch to conclude that the landlord of an iconic Manhattan office tower should be considered as trustworthy as the government of the United States.

Citigroup had recently partnered with Deutsche Bank to lend $783 million to the owner of the Seagram Building, an architectural gem on Park Avenue in midtown Manhattan. Now, its bankers were in the process of turning that huge loan into multiple bonds, hoping to resell the debt to investors in pieces. They would turn one loan into commercial mortgage-backed securities.

But doing the deal required the rating agency’s blessing: Fitch had to assign a slice of those bonds its coveted “AAA” rating, an action that would officially make the debt about as sound as a savings bond from Uncle Sam….”

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“Without corrective action the U.S. retirement system is headed for a “train wreck,” according to John C. “Jack” Bogle, senior chairman and founder of The Vanguard Group.

He identified three pillars of the retirement system: Social Security; the defined-benefit plan and the defined-contribution plan.

“They are all in terrible shape,” Bogle told philly.com. “Social Security, I could fix it in five minutes. I’d change the cost-of-living adjustment, not to cheat the retired people, but to get a formula that was right. It would result in savings. That, in itself, would probably cure it.”

He also suggested other changes, including raising the maximum taxable earnings for Social Security “to, maybe, $140,000, $150,000.” This year the maximum is $113,000.

“Raising it would pour money into the Social Security system,” he said. “Just those couple of little adjustments are easy to conceptualize, easy to prove the economics of, and impossible to get through our Social Security system. We have a fundamental conflict in the way Social Security is done. It’s essentially younger people paying for the retirement of older people,” he said.

“The younger people are going to be unhappy with this because they have to pay more. The older people are going to be unhappy because they calculated benefits under the old, and I think, incorrect, system, and they will be getting less.”

As of June 30, 2011, 54.8 million people, or 17.6 percent of the U.S. population, were receiving monthly Social Security benefits, according to justfacts.com….”

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Upgrades – ARO, CIEN, COO, GPS, HK, HALO, LOW, PRU, RBC, RCL

Downgrades – BBRY, SCHW, CLX, ETFC, GDI, GLNG, JNS, LNKD, RENN, SFD, AMTD

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“WASHINGTON (Reuters) – Producer prices recorded their largest drop in three years in April as gasoline and food costs tumbled, pointing to weak inflation pressures that should give the Federal Reserve latitude to keep monetary policy very accommodative.

The Labor Department said on Wednesday its seasonally adjusted producer price index fell 0.7 percent last month, the biggest decline since February 2010. Wholesale prices had dropped 0.6 percent in March.

A Reuters survey of economists had forecast prices received by the nation’s farms, factories and refineries dropping 0.6 percent last month.

In the 12 months through April, wholesale prices were up only 0.6 percent, the smallest increase since July last year. Prices had increased 1.1 percent in March.

Underscoring the tame inflation environment, wholesale prices excluding volatile food and energy costs nudged up 0.1 percent, the smallest increase since November. The so-called core PPI had risen 0.2 percent in each of the previous four months.

In the 12 months through April, core PPI advanced 1.7 percent after rising by the same margin in March.

The report was the latest suggestion that disinflation was starting to creep in against the backdrop of lackluster domestic and global demand….”

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“……New York Manufacturing Down

Activity in New York state’s manufacturing sector unexpectedly contracted in May, falling to the lowest level in four months as new orders and employment pulled back, data from the New York Federal Reserve showed on Wednesday.

The New York Fed’s “Empire State” general business conditions index fell to minus 1.43 in May from 3.05 in April, thwarting economists’ expectations for an increase to 4.

It was the first reading below zero since January, which indicates contraction for the sector….”

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“MOLINE, Ill. (AP) — Deere & Co. said on Wednesday that bad weather and weak economies will hinder sales growth this year.

The company reported better-than-expected second-quarter earnings and maintained its full-year profit prediction, but the outlook lowered Deere’s stock price in premarket trading.

Deere makes farm and construction equipment, and said sales of that gear would rise 5 percent during the current fiscal year, which is now half over. It had previously predicted growth of 6 percent.

The reduced sales expectation came after a long, cold winter in North America delayed the planting of this year’s seeds. It also slowed construction work and reduced demand for turf-care equipment, the company said.

CEO Samuel R. Allen also said Deere’s “near-term forecast is being tempered by lingering economic concerns in many parts of the world, which are restraining business confidence and growth.”

Deere’s second-quarter net income rose 3 percent to $1.08 billion, or $2.76 per share. That was up from $1.06 billion, or $2.61 per share, during the same period last year.

That topped analysts’ average estimates for earnings of $2.71 per share.

Revenue from equipment sales rose 9 percent to $10.27 billion from $9.41 billion a year earlier. Analysts had expected equipment revenue of $9.82 billion. Including financial services, Deere revenue rose 9 percent to $10.91 billion.

Deere raised prices 3 percent and shipped more gear during the quarter….”

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“NEW YORK (AP) — Macy’s Inc. is reporting a 20 percent increase in first-quarter profit as the department store chain saw solid sales despite cool temperatures that dampened shoppers’ appetite for spring clothes.

The company, which also operates the upscale chain Bloomingdale’s, is also raising its dividend to 25 cents from the current 20 cents. It also announced an additional $1.5 billion in stock buybacks.

Macy’s, based in Cincinnati, says it earned $217 million, or 55 cents per share in the quarter ended May 4. That compares with $181 million, or 43 cents per share, a year ago.

Revenue rose 4 percent to $6.38 billion.

Analysts expected earnings of 53 cents per share on revenue of $6.4 billion.

Macy’s shares rose 46 cents to $47.85 in premarket trading.”

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“West Texas Intermediate crude fell for a fifth day in its longest run of declines since December. Antitrust regulators are questioning European oil companies about possible manipulation of prices.

Futures traded near their lowest closing level in almost two weeks in New York. Crude inventories gained 1.1 million barrels last week, the industry-funded American Petroleum Institutesaid yesterday. A government report today may show stockpiles climbed 450,000 barrels, according to a Bloomberg survey. Royal Dutch Shell Plc, BP Plc, Statoil ASA and Platts said they’re being investigated after the European Commission conducted raids on their offices in three countries.

“The world will remain well-supplied,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. “Higher prices lately have triggered a boost to capacity that will continue to outpace slack post-crisis demand growth.”

WTI for June delivery fell as much as 77 cents, or 0.8 percent, to $93.44 a barrel and was at $93.63 in electronic trading on the New York Mercantile Exchange at 11:15 a.m. London time. The volume of all contracts traded was 25 percent above the 100-day average. Prices decreased 96 cents to $94.21 yesterday, the biggest decline since May 1 and the lowest close since May 2.

Brent for June settlement fell 13 cents to $102.47 a barrel on the London-based ICE Futures Europe exchange. The volume of contracts traded was 57 percent higher than the 100-day average. The front-month European benchmark was at a premium of $8.90 to WTI, from $8.39 yesterday. It closed at $7.65 on May 13, the narrowest gap since January 2011.

Price Probe…”

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“Iron ore slumped into a bear market on concern that slowing economic growth in China, the world’s biggest buyer, will reduce demand as global supplies increase.

Ore with 62 percent iron content delivered to the Chinese port of Tianjin fell 1.3 percent to $126.40 a ton today, according to The Steel Index Ltd. The benchmark price has lost 20 percent since Feb. 20, when it reached a 16-month high of $158.90, meeting the common definition of a bear market.

China’s April industrial output trailed estimates and fixed-asset investment slowed, data showed this week, after economic growth unexpectedly contracted in the first quarter. Bank of America Corp. reduced its estimate on China’s 2013 gross domestic product growth to 7.6 percent from 8 percent.

“Chinese macro data has been worse than expected,” Daniel Hynes, Sydney-based head of commodity strategy at CIMB Group Holdings Bhd. (CIMB), said before today’s price decline. Rio Tinto Group’s planned expansion of its iron ore operation in Australia “brings focus back on the supply side which, from an Australian point of view, is growing strongly,” he said by phone today.

Prices will decline as supplies expand faster than demand over the long term, Alan Chirgwin, general manager of iron ore marketing at BHP Billion Ltd. (BHP), said May 8. Low-cost supplies mainly from Australia and Brazil will replace more expensive output and eventually exceed Chinese demand, he said.

Expansion Plans…”

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“The French economy fell into its third recession in four years, increasing pressure on PresidentFrancois Hollande to adopt policies to revive growth.

Gross domestic product shrank 0.2 percent in the three months through March, following a revised 0.2 percent contraction in the previous quarter, national statistics office Insee said today. Economists expected a 0.1 percent drop, according to the median of 25 forecasts gathered byBloomberg News.

Celebrating his first anniversary in office today, Hollande is struggling to reduce the number of jobseekers from a record 3.22 million and lift his popularity rating from a record low. With the wider euro-area economy set to shrink for a second year in 2013, Hollande has been pushing to slow the pace of deficit reduction in the 17-nation bloc in favor of more pro-growth policies.

“The most important thing now is to create growth and employment,” Finance Minister Pierre Moscovici said this week in Brussels. “We must absolutely fight to have stronger growth in 2014 and to have the start of that growth in 2013.”

Euro-area GDP will drop 0.4 percent this year after a 0.6 percent decline in 2012, according to European Commission forecasts released earlier this month. First-quarter figures for the region will be published later today.

The commission said May 3 that it would give France another two years to reduce its deficit to less than 3 percent of GDP, though it said the nation’s lack of competitiveness is as much a part of the problem as the lack of growth in the region.

Hollande needs to press ahead with promises to revamp the nation’s labor law and pension system, the Commission said….”

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“European stocks rose, extending their highest level since June 2008, after the Bank of Englandraised its growth forecast for Europe’s third-biggest economy. U.S. index futures were little changed, while Asian shares rallied.

EasyJet Plc (EZJ) led a gauge of travel companies higher after the low-cost airline said it will deliver improved returns and profitability for the full year. Commerzbank AG surged 15 percent on the first day that it offered new shares to investors. ThyssenKrupp AG climbed 1.3 percent after Germany’s biggest steelmaker reported earnings that exceeded estimates.

The Stoxx Europe 600 Index gained 0.4 percent to 306.95 at 1:08 p.m. in London. The equity benchmark has rallied 9.8 percent so far this year, bolstered by monetary stimulus from the world’s central banks. Futures contracts on the Standard & Poor’s 500 Index slipped 0.1 percent today, while the MSCI Asia Pacific Index advanced 0.6 percent.

“Quantitative easing globally is driving the market,” said Andrea Williams, who helps oversee $76 billion as head of European equities at Royal London Asset Management. “Generally, valuations still look reasonable and the corporate results season has also been OK.”

U.S stocks rallied yesterday, sending the S&P 500 to its eighth record in the past nine trading days, amid increased optimism about the world’s largest economy. Asian equities rose today with Japan’s Nikkei 225 Stock Average climbing above 15,000 for the first time since January 2008.

Britain’s Recovery….”

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“Copper reached a one-week low in London on concern economies are weakening in the world’s biggest consumers of the metal while stockpiles are the highest since 2003, indicating ample supply.

The German economy expanded less than forecast in the first quarter, statistics showed today. Bank of America Merrill Lynch cut its estimate for growth this year in China, following JPMorgan Chase & Co. by a day. A report today will show industrial production in the U.S. shrank 0.2 percent last month, economists said. The nations are the three largest copper users.

“The poor GDP figures from Germany and France plus banks’ cut on China GDP growth lent much pressure to the metals market,” Pengjiang “Richard” Fu, director for Asian commodities trading at Newedge Group SA in London, said by e-mail. France entered a recession last quarter, figures showed.

Copper for delivery in three months slid 1.1 percent to $7,166 a metric ton by 10:23 a.m. on the London Metal Exchange. Prices reached $7,151, the lowest since May 3. Copper for delivery in July fell 1 percent to $3.254 a pound on the Comex in New York. Aluminum retreated for a fifth session in London and tin tumbled the most in two weeks….”

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“Gold dropped for a fifth day in the worst run since February in New York, to a three-week low, as a stronger dollar curbed demand for an alternative investment and bullion holdings declined. Other precious metals fell.

Holdings in exchange-traded products dropped 6.2 metric tons to 2,219.7 tons yesterday, the lowest since July 2011, according to data compiled by Bloomberg. The U.S. Dollar Index, a measure against six major currencies, reached the highest level since July today. Gold has retreated 16 percent this year, tumbling into a bear market last month, as some investors lost faith in the metal as a store of value and equities rose.

“The dollar is doing well,” Peter Fertig, the owner of Quantitative Commodity Research Ltd. in Hainburg, Germany, said today by phone. The ETP selling “is of course also a negative for the market and it’s indicating that among institutional investors there’s a negative sentiment. Retail buying isn’t enough to compensate.”

Gold for June delivery fell as much as 1.3 percent to $1,406.30 an ounce, the lowest since April 23, and was at $1,409.70 by 7:49 a.m. on the Comex in New York. A fifth day of losses would be the worst run since Feb. 20. Futures trading volume was 34 percent above the average in the past 100 days for this time of day, according to data compiled by Bloomberg. Gold for immediate delivery in London fell 1 percent to $1,411.49.

ETP Sales…”

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Australia’s dollar fell to an 11-month low after the premium the nation’s bonds offer over U.S. debt shrank to the least in a year, sapping the allure of the currency as a higher-yielding asset.

The extra rate investors get by holding the South Pacific nation’s 10-year notes instead of similar-maturity Treasuries dropped to 1.27 percentage points yesterday, the lowest since June 2012. Yields on U.S. securities reached a two-month high this week amid speculation theFederal Reserve may consider tapering bond purchases as the economy improves.

“For the remainder of the week, the Aussie dollar will be quite heavy,” said Joseph Capurso, a Sydney-based foreign-exchange strategist at Commonwealth Bank of Australia, the nation’s biggest lender by market value. “The U.S. dollar will remain quite firm, I think U.S bond yields will continue to lift a bit further.”

The Australian dollar lost 0.3 percent to 98.63 U.S. cents as of 5:29 p.m. in Sydney after touching 98.52, lowest since June 12 last year. The currency extended its decline to an eighth day, the longest run of slides since August 2011. New Zealand’s currency was little changed at 81.90 U.S. cents.

The yield on Australia’s 10-year note gained three basis points, or 0.03 percentage point, to 3.27 percent today. Traders see about a 60 percent chance that the Reserve Bank of Australia will lower the benchmark rate within three months after cutting it to a record 2.75 percent on May 7, according to data compiled by Bloomberg on overnight-index swaps.

RBA Policy….”

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