Market Review – 28/05/2010 18:18GMTEuro weakens after Fitch downgrades Spain’s sovereign debt ratingThe single currency declined broadly on Friday after Fitch Ratings downgraded Spain’s credit rating from AAA to AA+, fueling worries that the European sovereign-debt crisis would worsen and dampen economic recovery. Despite initial firmness in Australia after Thursday’s short-covering strong rise to 1.2395 in NY on rebound in U.S. equities, short-term speculators pushed euro lower in Asian morning after triggering stops at 1.2320, then 1.2300 and hit a low of 1.2281 before rallying back to 1.2454 in European morning, however, the single currency weakened again on renewed selling by various accounts and nose-dived to 1.2265 in NY afternoon after Fitch cut Spain’s sovereign debt rating.
The ratings agency downgraded Spain’s rating to AA+ from AAA with outlook for both long-term ratings ‘stable’ as Fitch expected Spain’s adjustment to lower debt level would materially reduce the rate of economic growth and inflexibility of Spanish labour market plus restructuring of regional savings banks (CAJAS) would hinder pace of such adjustment.
In other news earlier, Japan’s FINMIN Naoto Kan said at a news conference in Tokyo that at next week’s G20 meeting, ‘some nations may have an interest in discussing currencies; discussion of the impact of the European situation on currencies will be on the main agenda as well as financial regulation and developments in the global economy.’ Later, report showed that the German coalition government is considering tax hikes on a small group of taxpayers while Chinese Finance Minister Xie Xuren said sovereign debt issues in Europe would affect global economic recovery. Xie also said Beijing will continue its proactive fiscal policy.
Versus the Japanese yen, the greenback extended previous day’s rally at Tokyo opening due to strong demand for dollar at morning fixing, the pair continued to climbed to 91.41 at European opening before retreating from there to an intra-day low of 90.60 on cross buying in yen due to renewed risk aversion.
Although the British pound rallied fm 1.4490 to 1.4612 in Europe, cable tumbled to 1.4435 in tandem with euro after European closing before moving narrowly in NY afternoon. In other news, U.K. Prime Minister David Cameron said economic growth cannot be restored in Britain without getting the record budget deficit under control. In addition, UK Gfk consumer confidence survey in May hit its lowest level of -18 so far this year vs -16 in April, the readings signaled British consumers were increasingly gloomy over the future of the economy and turning negative on the outlook for their personal finances.
On economic front, U.S. Chicago PMI came in at 59.7 in May, much lower than the economists’ forecast of 62.0 and well below 63.8 in April, U.S. core PCE price index rose by 0.1% in April as widely expected. U.S. personal income rose by 0.4% in April, less than the economists’ forecast of 0.5% rise, after upwardly revised 0.4% increase in March. The downgrade of Spain dimmed risk appetite and DJI once dropped to 10090 before closing down by 1.19% at 10136.63.
Economic data to be released week include: Japan manufacturing PMI, industrial production, construction orders, housing starts, Australia trade balance, E.U. Business climate, economic sentiment, HICP flash, consumer confidence, Canada GDP and PPI on Monday. (U.S. and U.K. markets will be closed on Monday) Australia retail sales, Swiss GDP, PMI, Germany retail sales, manufacturing PMI, unemployment rate, E.U. Manufacturing PMI, unemployment rate, U.K. manufacturing PMI, Canada rate decision, U.S. construction spending and ISM manufacturing on Tuesday, Australia GDP, U.K PMI construction, Swiss retail sales, E.U. PPI and U.S. pending home sales on Wednesday. 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 on Thursday. E.U. GDP, Canada unemployment rate, Ivey PMI, U.S. avg. hourly earnings, non-farm payrolls and unemployment rate on Friday.