The dollar was higher against the Canadian and Australian dollars but lower against the yen and European currencies Tuesday. The greenback was supported by an equity rebound as well as an unexpected rise in ISM US manufacturing data. The yen pared earlier gains as US stocks recovered earlier losses. The yen and S&P 500 are at important support and likely to trade in tandem. The euro was higher but below the 1.58 resistance. Sterling was briefly above the 2.00 resistance but later pared gains as the UK manufacturing PMI and house prices showed further weaknesses.
The AUD/USD fell for a second day after Reserve Bank of Australia Governor Glenn Stevens said four interest-rate increases between August and March should cool inflation 'over time' from the fastest pace in almost 17 years. The pair unsuccessfully tested resistance yesterday. We expect a test of the 0.95-area support with no big moves before the US employment report Thursday.
Financial and Economic News and Comments
US & Canada
The ISM manufacturing business index unexpectedly rose to 50.2 in June from 49.6 in May, the Institute for Supply Management reported. The prices paid measure rose to 91.5 in June, a 29-year high, from May's 87.0, underscoring concern on faster inflation. The new orders gauge slid to 49.6 from 49.7. The production measure rose to 51.5 from 51.2. Overall, the figures show the US manufacturing sector unexpectedly expanded in June following four months of contraction, while the overall economy grew for the 80th consecutive month.
US construction spending declined 0.4% m/m in May, on continued deterioration in the residential sector, after a revised 0.1% m/m drop in April, the Commerce Department said. Private residential construction spending fell 1.6% m/m in May to $378.9 billion, the 25th decline in the past 26 months. Private residential construction dropped 27.3% y/y, while total construction spending fell 6.0% y/y.
Europe
The eurozone manufacturing PMI registered 49.2 in June, above the flash reading of 49.1 but down from 50.6 in May, signaling contraction for the first time in three years.
Euro-area unemployment remained at 7.2% in May, the lowest rate since the data series began in 1993, Eurostat said.
Germany's unemployment rate dropped to 7.8% in June, the lowest since August 1992, from 7.9% in May, the Federal Labor Agency said. The number of people out of work fell 38,000 to 3.27 million in June.
The German manufacturing PMI was revised up to 52.6 in June from an initial estimate of 52.3 and 53.6 in May. A reading above 50 signals expansion in the German manufacturing sector. The manufacturing employment subindex fell to 53.3 in June from 54.8 in May.
Retail sales in Germany rose a more-than-expected 1.3% m/m in May after dropping 0.6% m/m in April, the Federal Statistics Office said. Sales increased 0.7% y/y.
The UK manufacturing PMI unexpectedly fell to 45.8 in June, indicating the most contraction in the UK manufacturing sector since 2001, from 49.5 in May, data from the Chartered Institute of Purchasing and Supply showed.
UK house prices declined 6.3% y/y to ?172,415 ($343,278) in June, the biggest drop since November 1992, Nationwide Building Society said. House prices fell 0.9% m/m in June, the eighth consecutive monthly decline, after dropping 2.5% m/m in May. Falling house prices risk pushing the UK economy into recession.
Asia-Pacific
Japan's exports increased a more-than-forecast 3.7% y/y in May after rising 3.9% y/y in April, data from the Finance Ministry showed.
Japan's corporate prices accelerated in May. Corporate goods prices surged 1.1% m/m and 4.7% y/y, and corporate service prices increased 0.2% m/m and 0.6% y/y in May, the Bank of Japan said.
The Reserve Bank of Australia left the cash rate unchanged at 7.25% for a fourth month, as forecast. Australia's economic growth rate will slow as the highest interest rate in 12 years and surging gasoline prices force households to cut spending, RBA Governor Glenn Stevens said. 'On balance, while the inflation outlook remains concerning, the Board's assessment continues to be that demand growth will be moderate this year….Inflation is likely to remain relatively high in the short term, and the CPI will be further boosted in coming quarters by the recent rises in global oil prices. Looking further ahead, inflation in both CPI and underlying terms should decline over time, provided demand continues to evolve as expected,' Stevens said.
The Tankan manufacturer sentiment index fell to 5 points in June, a third quarterly decline, from 11 in March, the Bank of Japan said. Large companies said profits will decline 7% in the year ending March 31, compared with a 0.3% increase predicted three months ago. Confidence at big service-sector companies dropped to a 4-year low of 10 points in June from 12 in March.
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