Asian stocks gained ground today amid optimism the world’s fastest economic growth and relatively higher interest rates will attract overseas funds after stronger than expected macroeconomic data in China eased woes about a slowdown in economic growth in the world's second largest economy. Chinese GDP expanded by 9.5% from a year earlier, the statistics bureau said in Beijing today, after a 9.7% gain in the first quarter. That compared with the median 9.3% estimate. Industrial output advanced by 15.1% in June, the most since May 2010 and retail sales grew by 17.7% in June after a 16.9% advance in May. According to the International Monetary Fund's forecast Chinese economy will expand by 9.6% in 2011, more than four times the pace for advanced economies.
US Dollar
The dollar fell yesterday against the yen, Swiss franc and Canadian dollar but strengthened against the euro, British pound and Australian dollar. Yesterday were released minutes of the June 21-22 FOMC meeting, which revealed Federal Reserve policy makers disagreed on whether to keep monetary stimulus if the outlook for economic growth remains weak. The minutes showed members are having both inflation and growth fears. Some of them said more policy stimulus might be needed if growth is too slow to reduce unemployment, while others said inflation could be higher than the market expects. The committee said that “the recovery remained subject to some downside risks” such as a further decline in housing prices, a larger-than-expected tightening of fiscal policy in the near future, and “potential financial and economic spillovers” from the European debt crisis. The Dollar index rocketed yesterday to its highest since the middle of March – 76.71, but fell later to 75.89.
Euro
The euro weakened to its 4-month low against the dollar (1.3836) and touched a record low against the Swiss franc (1.1552) after Ireland’s credit rating was cut by Moody’s to a non-investment grade “Ba1” from “Baa3”. Ireland is the third euro zone country after Portugal and Greece which has junk-rated bonds. The outlook remains negative. Portugal’s rating was cut four levels to “Ba2” on July 5 by Moody’s. The 17-nation currency remains under pressure amid investors concern the region’s debt crisis will expand to Italy, while European finance ministers have failed to agree after a 2-day meeting on a program to cope with the debt crisis in the medium term and on private sector investors participation. Italian 10-year bonds’ yields rose yesterday to a 14-year high – 6.02%. Today however the pair EUR/USD recovered somewhat in Asian trading hours and traded at 1.3951-1.4037.
Japanese Yen
The yen strengthened yesterday and the pair USD/JPY touched its lowest since March 17 – 78.49. Nevertheless the yen fell today after Finance Minister Noda said its moves have been a bit one-sided. “I think the movement was a little one-sided, so I will continue to watch the market carefully today,” he said. These comments were stronger than his remarks on Tuesday when he suggested the currency’s rise had been “sharp.” The comments remind some warnings from policymakers that rapid foreign-exchange moves are not “desirable”, followed by interventions in the market. An intervention is less possible now, but still should be taken into consideration, analysts say, as a stronger currency threatens the country’s competitiveness. Pair USD/JPY pared 3-day losses and traded today at 79.12-79.56.
