Regional stock indices dropped yesterday all over the world after manufacturing expanded at the weakest pace in more than a year and employers hired fewer workers than economists estimated, fueling concern the global economic recovery will slow. In Asian trading hours today Asian stocks were also under pressure while Japanese market was also affected by political uncertainty. All US major indices lost more than 2% by the end of the session yesterday, while so-called safe-heaven currencies as Swiss franc, Japanese yen and US dollar gained ground on risk aversion.
US Dollar
The dollar extended gains in Asian trading hours today after a couple economic reports, released on Wednesday, showed weak jobs and manufacturing data. US companies hired 38000 workers in May, the lowest since September 2010, according to ADP employment report. Institute for Supply Management reported yesterday its factory index fell to 53.5 last month, which was the lowest level since September 2009, from 60.4 in April. The key Labor Department figures may also show tomorrow US firms added 180000 workers in May after hiring 244000 in April, according to economists’ expectations at the beginning of this week. However, according to Bloomberg surveys, some investment banks already lowered their expectations. Goldman Sachs for instance yesterday revised its estimate for nonfarm payrolls to 100000 from 150000, while Citigroup trimmed its projection to 100000 from 170000. Fed Vice Chairman Janet Yellen said yesterday that “the current accommodative stance of US monetary policy continues to be appropriate because the unemployment rate remains elevated and inflation is expected to remain subdued over the medium run.”
Euro
The euro initially rose yesterday as German Chancellor Angela Merkel said the European Union remains committed to its shared currency. She added that growth projections for Germany are very positive and that the current crisis is not a “euro problem”, but a “debt problem” in “some EU states” ECB President Jean-Claude Trichet also tried to encourage investors saying that the central bank “will continue to deliver price stability.” But later the single currency fell under pressure against the greenback after rating agency Moody’s downgraded Greece’s sovereign debt to “Caa1” from “B1” and raised its risk of default to 50% as European officials gathered together to elaborate the second bailout plan in two years for Greece. A 110 billion-euro package, granted a year before failed to prevent further instability, and the country now faces a funding gap of 30 billion euros, with 10-year government bonds yields already above 16%, while German equal bonds remain below 3%. Nevertheless Greece authorities commented that the Moody’s downgrade “overlooks” its commitment to meeting its 2011 fiscal target as well as an “accelerated” state asset-sales program. According to the statement Greece has already achieved a significant progress and will continue to pursue its targets. The euro fell toward 1.43 against the dollar yesterday.
