Several global equity indices moved to fresh two-year highs on Wednesday as investors were reminded of the positive growth picture from emerging markets at least. The Singapore government was forced to lift this year’s growth prediction to 15% following a staggering 26% quarterly GDP surge announced today. Despite several attempts at dousing the flames of bull markets for stocks in the second quarter, it was a glowing earnings report at Intel that fanned the smoldering embers overnight as the bellwether for corporate demand reported a record quarter. Risk on remains the theme and the sharp moves are there to prove how wrong-footed investors have become.
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British pound – The star performer once again is the British pound, which responded to a bullish employment report and reached its highest level against the dollar in nine weeks. The pound surged to $1.5290 after the British government said that June job creating rose to 20,800 while upwardly revising the reading for May. In both cases the improvement above prevailing data was marginal, but still the pound responded more aggressively than commodity dollars might have. It would appear that there are many investors remaining trapped in the mindset that the current revaluation of the dollar is merely temporary forcing them to constantly take losses as stop-losses are breached.
The strong labor market report echoes those released recently in Canada and Australia where jobs growth has been set alight by the global recovery. Today’s report possibly relieved some investors who had also feared that the downside of a recent tough budget might be a snuffing out of the British economic recovery. Within the data what was also encouraging is the dip in the quarterly pace of wage inflation while the internationally recognized rate of unemployment, the ILO measure slipped a notch to 7.8%. The headline unemployment rate for June was 4.5%.
Euro – The single European currency remains weaker on nagging doubts about the acidity of the soon-to-be-released stress tests on Eurozone banks. However, the euro remains north of $1.2700 this morning if only marginally after data for industrial production in May fell short of expectations. The 0.9% month-to-month expansion was shy of a predicted 1.2% pace and resulted in an annual expansion of 9.4% rather than more than 11%. Still, there is nothing worrisome within the dated report that should unsettle the euro and it’s becoming clearer that some analysts are stepping back from their incessant calls to sell the euro on all rallies. One notable call this morning sees the opportunity to sell at $1.3000, which in essence gives the euro yet another green light as growth worries wane. By the time that level is reached, you can bet that several more bears will be far less reluctant to bet against a euro that would have recovered a full 10% from its June despair.
U.S. Dollar – The dollar index is marginally higher after yesterday’s dollar drubbing and remains at its weakest since May 10. Investors are seemingly happy to take positive growth factors as a dollar negative for now, which is why the dollar is managing to eek out a positive showing against the yen this morning where it buys ¥88.62. Later today we’ll learn whether or not the nasty May retail sales data was a real sign of consumer weakness or just a fluke. Analysts predict June data will show a 0.3% decline after May’s 1.3% contraction. On Wednesday afternoon the minutes from the June FOMC meeting will be scoured for signs that members turned more cautious on the recovery.
Japanese yen – Surging Asian stock markets harmed the Japanese yen overnight sending it tumbling against the dollar to ¥89.10 at its weakest. Both the Aussie and the pound have managed to maintain earlier strength against the Japanese unit, while the euro is slightly lower and buys ¥112.53. Asian currencies largely strengthened versus the dollar following the glowing Singapore GDP report while overnight data from China will reveal exactly how much that economy slowed in the second quarter.
Canadian dollar –The Canadian dollar has lost some of its impetus this morning as it sits at the bottom of its early day range at 96.57 U.S. cents. Crude oil is marginally lower in price despite the enthusiasm for global recovery. Yesterday’s bullish streak for the Canadian dollar spurred on by expectations of an interest rate increase at the Bank of Canada next week saw the loonie reach its highest in three weeks at 97.24 cents.
Aussie dollar – An 11% jump in the reading of consumer confidence in the monthly Westpac and Melbourne Institute survey helped maintain the strength of the local dollar this morning. The unit rose to 88.53 U.S. cents testing resistance created at 88.59 on June 21.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers. email@example.com