Tuesday June 1, 2004 - 11:40:08 GMT
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FX STRATEGY SESSION-- N.Y. OPEN
The dollar is trading broadly weaker early on Tuesday as the markets continue to react negatively to the weekend hostage situation in Saudi Arabia that left 22 foreign oil industry workers dead. Forex markets are worried about the implications of the event for the stability of future supply from the country. Crude Light is trading up about $1 and in range of $41 in electronic trade. In general equity prices are weaker as the markets express their concerns about the availability of global oil supplies. OPEC is meeting Thursday in Beirut. Last week the talk was that the cartel would remove all production limits, but clearly this situation is in flux. Any disruption would be seen as a dollar negative as it is the U.S. that will have to deal with the situation.
Today say the release of the manufacturing PMI’s out of Europe and will see the U.S. figures later. In general the story was positive on the continent with the Euroarea PMI improving to 54.7 vs., 54.0 in April. One survey had seen that figure falling slightly to 53.8 in May. The U.K. PMI rose to 55.6 from 55.2 in April. The U.S. figure is seen falling to about 61.5 after a 20 year high of 62.4 in April. Some pick up in consumer demand was evident in Europe. In the U.K., the CBI saw its May Retail Sales Index rise to +53 from +30 in April. They characterized the data as “extremely above average”. These data will keep the pressure on the BOE to tighten policy further. The ECB meets on Thursday and is highly likely to keep policy unchanged.
In Japan, there is a growing concern about developing dollar weakness. Talk is already starting to surface that the Bank of Japan may resume its dollar intervention if the currency starts to slide sharply. Expect the government to do all it can to maintain its export-led growth. The Ministry of Finance warned on Tuesday that it is watching the markets closely. Somehow the Nikkei managed a modest advance despite the news on the oil front, the weaker dollar and a new bank scandal. The latest issue for the banks centers around charges that a major bank kept from an FSA audit a report that indicated that the financial condition of some of the banks loans was poorer than the institution was letting on. This story was shrugged off by the Nikkei.
In Canada, the +2.4% p.a. 1Q04 GDP growth after a revised 3.3% rate of advance in 4Q03 stemmed mainly from a slowdown in inventory accumulation. Final domestic demand advanced strongly by 4.8% p.a. This inventory drawdown must be replaced and this reversal is likely to result in strong growth in the quarters ahead. Based on these data, some are now starting to prepare themselves for a BOC rate hike later in the year.
This is a key week for Australia with much quarterly data due and the Reserve Bank active. The Reserve Bank met earlier on Tuesday and will make its policy decision known in morning trade on Wednesday. W expect no rate change. RBA Deputy Governor Glenn Stevens will speak in Brisbane on Wednesday and then RBA Governor Macfarlane will make his Semiannual Parliamentary Testimony on Friday.
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