Market Review – 02/06/2010 20:48 GMTThe Japanese yen tumbles on uncertainty after Prime Minister resignsThe Japanese yen weakened broadly as the resignation of Japanese Prime Minister Yukio Hatoyama brought bearish bias on the currency while his likely successor, Finance Minister Naoto Kan, said in the past he preferred a weaker yen and had called for the Bank of Japan to do more to fight deflation. The unpopular PM together with the ruling party DPJ’s secretary general Ozawa resigned on Wednesday to boost the ruling party’s faltering fortunes in the coming upper house election on July 11. Finance Minister Naoto Kan, who surprised markets earlier by saying that he wanted the yen to weaken more and most businesses favored a dollar/yen rate around 95, emerged as a possible replacement.
Firmness in US stocks together with political turmoil in Japan reduced the demand for yen as safe-haven currency. Versus the Japanese yen, although the greenback briefly dipped to 90.89 in Australia, the pair rebounded from there and traded with a firm undertone throughout the day.
U.S. stocks rose sharply on favorable April U.S. home sales data as US pending home sales index rose by 6.0% m/m and 24.6% y/y (versus forecast of +5.0% m/m and 20.2% y/y, respectively) to 110.9. The usd/jpy pair extended intra-day rise and climbed to as high as 92.36 after the release of the data and DJI surged by 225.52 points and ended the day up at 10249.54.
The single currency moved relatively narrowly on Wednesday. Euro fell to 1.2185 in Asia due to initial weakness in global stocks as Nikkei-225 closed down by 1.12% at 9603.24 whilst FTSE, DAX and CAC were seen down by more than 1% at the openings. However, the single currency ratcheted higher to 1.2273 in European mid-day as European equities pared most of early losses before falling briefly to 1.2175 on profit-taking. The single currency rebounded to 1.2264 in NY afternoon as firmness in US stocks boosted risk appetite.
On economic front, eurozone April PPI rose by 0.9% m/m and 2.8% y/y, higher than the economist’s forecast of 0.7% m/m and 2.5% y/y and the 0.6% m/m and 0.9% y/y increase in March. In other news, ECB Governing Council member Christian Noyer (Bank of France Governor) said ‘ Eur/usd rate is at about the 10-year average and the current euro rate by no means unusually low.’
The British pound maintained a firm undertone initially on active cross buying in sterling (eur/gbp tumbled to 18-month low of 0.8280) in part due to the withdrawal of UK’s Prudential to purchase AIG’s Asian unit AIA. Cable hit an intra-day high of 1.4771 in European morning but the pound retreated sharply from there and fell to 1.4553 on active cross unwinding in sterling as eur/gbp rebounded strongly from said 0.8280 low to 0.8380. The pound then rebounded strongly on active cross-buying in sterling especially vs euro as eur/gbp retreated from 0.8380. On economic front, U.K. construction PMI was 58.5 in May versus economists’ forecast of 58.0 n the reading of 58.2 in April.
Investors returned to buy assets linked to growth as strength in U.S. stocks boosted risk appetite. U.S. crude futures for July delivery settled to $0.28 higher at $72.86 per barrel. Aud/usd also rose to 0.8425 from 0.8276 while nzd/usd jumped to 0.6824 from 0.6719 and usd/cad dropped from 1.0573 to 1.0371.
Economic data to be released on Thursday include: Japan business capex, Australia trade balance, U.K. house price, service PMI, Germany service PMI, E.U. Service PMI, retail sales, U.S. ADP employment, jobless claims, labor cost, productivity, durable goods, factory orders and ISM non-manufacturing.