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The global economic recovery is building steam led by strong growth in Asia although considerable risks remain, the Organization for Economic Cooperation and Development says. Its latest economic outlook report projected gross domestic product across OECD countries to rise by 2.7% this year and by 2.8% in 2011. In its last forecast in November, the OECD region was forecast to rise by 1.9% in 2010. The global economy is predicted to grow 4.6% this year.
In the U.S., activity is projected to rise by 3.2% this year and by a further 3.2% in 2011. Euro area growth is forecast at 1.2% this year and 1.8% next while, in Japan, GDP is expected to expand by 3% in 2010 and by 2% in 2011. The U.S. unemployment rate is expected to average 9.7% in 2010 before falling to 8.9% in 2011. The eurozone unemployment rate is forecast to average 10.1% both this year and the next.
"This is a crucial time for the world economy," said OECD secretary-general Angel Gurria. "Coordinated international efforts prevented the recession from becoming more severe but we continue to face huge challenges. Many OECD countries need to reconcile support to a still fragile recovery with the need to move to a more sustainable fiscal path."
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The financial stability of the euro area amid bad fiscal policy in certain member countries is the key issue the currency bloc is currently facing and not the value of the euro, the European Central Bank President Jean-Claude Trichet said Monday.
"The euro is a very credible currency which keeps its value," Trichet said, according to the text of an interview with French daily Le Monde, which was published on the ECB website. "The issue is that of financial stability within the euro area on account of bad fiscal policy in certain countries, in particular Greece."
"It is imperative that this be corrected," the policy maker said, adding that fiscal policies in large countries such as Germany, France and Italy were also not exceptions. He blamed fiscally challenged economies for terribly neglecting close multilateral surveillance, which was fundamental according to the stability and growth pact.
When asked about the prevailing nervousness in financial markets, despite a massive rescue plan, Trichet said investors would take some time to regain confidence and sentiment would be restored gradually. "The measures are so significant in terms of both their nature and their scale that there is no doubt that they will have a positive effect on the markets," he said.
The ECB chief said the mechanism to stabilize markets is taking place properly. He noted that the speed at which parliamentary decisions were taken in countries facing fiscal problems was "remarkable". Trichet ruled out Eurozone debt restructuring programme saying that it is substantially low compared to that of the U.S., Japan and the U.K.
The policy maker also denied any Anglo-Saxon conspiracy against the euro. "I simply believe that some international investors struggle to understand Europe and its decision-making mechanisms," he said. "They have difficulty in gauging the historical size of the European construction and in anticipating the capacity of Europeans to take decisions that are just as important as those taken a few days ago."
Further, he called for the establishment of the equivalent of a fiscal union in the euro area in terms of monitoring and supervising the implementation of policies on public finances. He expressed confidence that a quantum leap would be possible if Europe exploit everything the treaties, seen as the starting point of the fiscal union, permit and greatly improve the secondary legislation from Brussels.
Regarding the euro, Trichet said it is a credible currency which inspires confidence, the most important ingredient for the consolidation of Europe's economic recovery. Since its introduction eleven and a half years ago, average annual inflation has been below but close to 2%, in line with the ECB's definition of price stability. The euro's capacity to maintain its value is absolutely essential for the confidence of investors both inside and outside the euro area, he asserted.
With regard to economy, Trichet said recent data suggest economic growth in the second quarter would be slightly higher than expected. However, he urged caution as the region's future growth depends on the ECB policy makers' ability to strengthen confidence as quickly as possible.
Trichet repeated that the ECB is completely independent of governments and pressure groups of any kind. He reaffirmed that the interventions were aimed to enable certain markets to function more normally and that all the liquidity injected through these interventions will be absorbed.
Also on Monday, speaking at the 38th economic conference of Austria's central bank, Trichet said the ECB is not printing money. He reiterated the bank's commitment to preserve its primary objective of maintaining price stability.
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Japan's current account surplus increased in April from the previous year mainly due to a larger surplus in the trade gap, an official report showed on Tuesday. Separate data released today showed that during May, bank lending in Japan recorded the sharpest annual fall in nearly five years.
The Ministry of Finance said the current account surplus surged 88% year-on-year to JPY 1.24 trillion from JPY 660.6 billion in the previous year. The surplus, however, came in slightly below economists' expectations for a JPY 1.30 trillion surplus and was well below March's surplus of JPY 2.53 trillion.
A trade surplus of JPY 859.1 billion was recorded in April compared to the JPY 167.1 billion surplus a year ago. This was driven by growth in exports outpacing that of imports. Exports surged 42.7% annually to JPY 5.58 trillion, while imports grew 26.1% to JPY 4.72 trillion.
The surplus in the goods & services account stood at JPY 433.6 billion, in contrast to the JPY 260.9 billion deficit in the previous year. At the same time, the deficit in the current transfers account narrowed slightly to JPY 137.6 billion from JPY 138.4 billion in the previous year.
The income account surplus decreased to JPY 946 billion in April from JPY 1.06 trillion a year ago. The deficit in the services account was broadly unchanged at JPY 425.5 billion.
Meanwhile, the surplus in the capital & financial account decreased to JPY 49.3 billion from JPY 275.8 billion in the previous year. The financial account surplus shrank to JPY 72.8 billion from JPY 293.4 billion a year ago. This was largely due to other investment deficit rising to JPY 6.38 trillion from JPY 2.57 trillion last year.
Separately, the Bank of Japan announced that bank lending was down 2.1% year-on-year in May, marking its sharpest decline since August 2005. Standing now at JPY 396.12 trillion, it follows a revised 1.9% contraction in April.
Including trusts, bank lending was down 2% to JPY 458.75 trillion following the 1.8% decline in the previous month. By themselves, lending from trusts was down 1.3% annually in May to JPY 62.6 trillion.
The central bank also revealed that M2 money supply climbed 3.1% annually to JPY 777.2 trillion in May, slightly higher than forecasts for a 2.8% increase following the 2.9% gain in April. The M3 money stock was up 2.3% to JPY 775.1 trillion, exceeding expectations for a 2.1% increase following the 2.2% gain in the previous month. The L money stock climbed 2% annually to JPY 1.46 trillion.
Japan's new Prime Minister Naoto Kan is naming his cabinet today and he is due to be formally sworn in by Emperor Akihito. Deputy Finance Minister Yoshihiko Noda has been named as the new Finance Minister, a post left vacant by Kan. Noda is thought to favor spending cuts and fiscal consolidation to rein in Japan's large public debt level, which is the highest in the industrialized world.
Kan was elected prime minister by lawmakers on Friday, two days after the resignation of Yukio Hatoyama. The former prime minister stepped down over a broken election pledge to move a controversial U.S. military base out of the island of Okinawa.
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Eurozone industrial production rose more than expected in April, giving a good start to the second quarter and offering hope that industry will make strong contribution to economic growth despite the region's fiscal woes.
The seasonally adjusted industrial output rose 0.8% on a monthly basis in April, slightly slower than March's revised increase of 1.5%, figures released by Eurostat showed Monday. But, production grew more than the expected 0.6% rise.
On an annual basis, industrial production rose 9.5%, the biggest increase since the series started in 1991. That was also above the expected growth of 8.6%. It followed a revised 7.7% increase recorded in April.
"April's Eurozone industrial production figures suggest that the recovery in the sector continues at a decent pace, despite the fiscal crisis in the region," said Jonathan Loynes at Capital Economics. The economist noted that today's figure will give a solid start to the second quarter and underlines expectations that industry will lead growth. However, Loynes expressed doubt on whether the recovery in the euro area industrial sector will help the weakest economies in the region to cope with the coming fiscal squeeze.
Details of data showed that production of intermediate goods grew by 2.2% month-on-month and that of capital goods rose by 1.1%. Durable consumer goods output fell by 0.1% and production of energy declined by 0.9%. Production of non-durable consumer goods dropped by 1.2%.
Eurozone industrial sector is benefiting from recent improvement in global economic activity and the weak euro. "The manufacturing sector has been the leading light of the Eurozone economy so far in 2010, benefiting from improved domestic and, especially, export demand as well as inventory rebuilding," IHS Global Insight economist Howard Archer said.
However, the recent weakening in the Eurozone manufacturing sector as suggested by the purchasing managers' index indicates that the Eurozone debt crisis has started denting on economic activity. The index in May fell to a three-month low as output and new order growth slowed sharply.
Industrial production in EU27 rose at a slower pace of 0.5% month-on-month compared with 1.4% increase in March. Among the member states for which data were available, industrial production rose in twelve and fell in nine. The highest increases were registered in Lithuania, Estonia and Denmark, while Ireland, Portugal and Greece recorded largest decreases. On an annual basis, production in EU27 grew 7.8%.
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Existing home sales showed an unexpected decrease in the month of May, according to a report released by the National Association of Realtors on Tuesday, with higher sales in the West and the South more than offset by a notable drop in sales in the Northeast.
The report showed that existing home sales fell 2.2 percent to an annual rate of 5.66 million units in May from an upwardly revised 5.79 million unit rate in April. Economists had expected sales to rise to a 6.10 million unit rate from the 5.77 million unit rate originally reported for the previous month.
While existing home sales fell on a monthly basis, NAR said that sales remain at elevated levels amid buyer response to the tax credit, characterized by stabilizing home prices and historically low mortgage interest rates.
NAR noted that existing home sales in May are still up 19.2 compared to the 4.75 million unit rate reported for the same month a year ago.
Lawrence Yun, NAR chief economist, said, "We are witnessing the ongoing effects of the home buyer tax credit, which we'll also see in June real estate closings."
"However, approximately 180,000 home buyers who signed a contract in good faith to receive the tax credit may not be able to finalize by the end of June due to delays in the mortgage process, particularly for short sales." he added.
Yun noted that many potential sales are also being delayed by an interruption in the National Flood Insurance Program, particularly in Florida and Louisiana
Subsequently, NAR said its supports Senate amendments to extend the home buyer tax credit closing deadline through September 30 and to renew the flood insurance program.
As mentioned above, the unexpected drop in existing home sales was largely due to a 18.3 percent drop in sales in the Northeast.
Existing home sales in the West and the South increased by 4.9 percent and 0.5 percent, respectively, while sales in the Midwest were unchanged.
The report also showed that the national median existing-home price was $179,600 in May, up 2.7 percent compared to the same month last year. Distressed homes slipped to 31 percent of sales in May compared with 33 percent in April, NAR added.
NAR President Vicki Cox Golder said, "With distressed sales at roughly the same level as a year ago, the gain in home prices is a hopeful sign that the market is in a good position to stand on its own without further government stimulus."
"Very affordable mortgage interest rates and stabilizing home prices are encouraging home buyers who were on the sidelines during most of the boom and bust cycle," she added.
Additionally, NAR said that total housing inventories fell 3.4 percent to 3.89 million existing homes available for sale at the end of May. This represents 8.3 months of supply at the current sales pace, compared with 8.4 months of supply in April.
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The leading economic index for the euro area declined in May for the first time in more than a year, the Conference Board said Monday.
The index fell 0.5% in May to 109.7, following a 0.8% increase in April. At the same time, the Conference Board Coincident Economic Index, a measure of current economic activity, increased 0.1% in May after falling 0.2% in April. This was the sixth increase for the last seven months, the group said.
Negative contributions to the leading index, that came from stock prices, Markit manufacturing purchasing managers index and the economic sentiment index, were high enough to offset the continued large positive contribution from yield spread, the think tank pointed out. "The first fall of the LEI for the Euro Area in fourteen months suggests that the rebound in economic growth may have peaked during the second quarter, said Jean-Claude Manini, senior economist at the the Conference Board.
"However, it is too soon to say that the recent improvement in the economy will subside strongly in the near term," Manini said. "Employment may suffer from a wait-and-see attitude during the second half of 2010, but the effects of deficit reduction measures will be primarily felt in 2011."
The group noted that despite the decrease, the leading index for the Euro area is still 14.9% higher than its March trough. European sovereign debt crisis along with fiscal consolidation plans had weighed on Eurozone economic sentiment in May. The LEI aggregates eight economic indicators that measure activity in the Euroarea as a whole.
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The US dollar and the Japanese yen gained ground against their major opponents on Tuesday morning in Asia as a decline in most Asian stocks prompted traders to seek safe-haven currencies.
The yen and the dollar are viewed as safe haven currencies and they often rally when the stock markets slide and conversely lose ground when the stock market's appetite for risk is more robust.
Asian stock markets declined on renewed concerns over the global economic recovery. As of 9:50 pm ET, Japan's benchmark Nikkei 225 stock index dropped 1.46 percent, South Korea's Kospi declined 1.2 percent, Australia's S&P/ASX 200 was down 0.30 percent, New Zealand's NZSE-50 fell 0.39 percent and Taiwan's weighted average fell 0.16 percent.
The yen advanced to a 5-day high of 131.92 against the pound and 109.18 against the euro by 8:45 pm ET and the next likely resistance levels are seen at 131.20 and 109.10, respectively. The Japanese currency is currently quoted at 109.50 against the euro and 132.44 versus the pound.
The yen also climbed to a 5-day high of 72.76 against the Australian dollar, 81.92 against the Canadian dollar and 59.76 against the NZ dollar at this time and if the domestic unit strengthens further, likely resistance levels are seen at 71.90, 81.60 and 59.50, respectively. The yen is currently quoted at 59.9 against the kiwi, 82.20 versus the loonie and 73.14 against the aussie.
The Reserve Bank of Australia is set to conclude its monetary policy meeting today and then announce its decision on interest rates at 12:30 am ET. Analysts are expecting the bank to keep rates on hold at the current level of 4.50 percent.
The Japanese yen rose to a 4-day high of 87.43 against the US dollar and 82.03 against the Swiss franc around 8:45 pm ET. The yen is presently worth 87.55 against the greenback and 82.33 versus the Swiss franc with 87.0 and 81.80, respectively seen as the next likely target levels.
The greenback rose to a 5-day high of 1.2482 against the euro and 1.5084 against the pound before reversing its direction around 8:55 pm ET. If the greenback strengthens further, likely resistance levels are seen at 1.2240 against the euro and 1.4860 against the pound.
The US currency reversed its course after edging higher to 1.0669 against the Swiss franc at this time. The greenback-franc pair is presently quoted at 1.0640.
Looking ahead, Japan will provide preliminary May numbers for its leading and coincident indexes at 1:00 am ET. The leading index is expected to come in at 98.9, down from 101.7 in April. The coincident is forecast to show a score of 101.2, down barely from 101.3 in the previous month.
Switzerland is set to release its consumer price index for June at 3:15 am ET. The CPI is expected to rise 0.9% on year, while a 0.1 percent decline is expected on the month.
Canadian building permits for May and the US ISM non-manufacturing composite index for June are expected in the New York session.
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During early European deals on Wednesday, the Canadian dollar edged down against its US and Japanese counterparts despite a rise in oil price.
Meanwhile, the loonie pared some of its Asian session gains against the euro and the aussie.
Oil prices climbed today as traders look to weekly crude supply data for signs of recovering U.S. demand.
U.S. crude for August advanced as much as 40 cents to $72.38 a barrel on Wednesday and was up 15 cents at $72.13 at 1:38 am ET, after touching $71.09 on Tuesday, its lowest intra-day price since June 8, and peaking at $73.86. ICE Brent for August rose 16 cents to $71.61.
The American Petroleum Institute will publish weekly inventory data at 4:30 pm ET today, followed by government statistics from the Energy Information Administration (EIA) on Thursday at 11 am ET. Both reports come a day later than usual because of the independence day holiday on July 5.
Most Asian and European stocks plunged today as weak U.S. data renewed concerns about the strength of the global economic recovery
Activity in the U.S. service sector expanded for the sixth consecutive month in June, according to a report released yesterday by the Institute for Supply Management, although the pace of growth in the sector slowed by much more than economists had anticipated.
The ISM said its index of activity in the service sector fell to 53.8 in June from 55.4 in May, but a reading above 50 indicates continued growth in the sector. Economists had expected the index to show a much more modest decrease to a reading of 55.0.
In Asia, Japan's Nikkei 225 index fell 0.6%, Hong Kong's Hang Seng slipped 1.2%, South Korea's Kospi declined 0.55%, Taiwan's main index plunged 0.2%.
Australia's S&P 200 index and the All Ordinaries index slipped 0.5% each.
In Europe, Germany's DAX fell 0.6% in early deals, France's CAC 40 index plunged 1.2% and U.K.'s FTSE 10 index lost 0.9%.
The Canadian dollar slipped against the US currency in early European deals on Wednesday. At present, the loonie is worth 1.0580 against the greenback, compared to yesterday's close of 1.0544. The near term support for the Canadian dollar is seen around the 1.068 level.
During early European deals on Wednesday, the Canadian dollar declined against the Japanese yen. The loonie-yen pair is currently worth 82.43, down from yesterday's closing value of 83.02. If the loonie weakens further, it may likely target the 82.0 level.
During early European deals on Wednesday, the Canadian dollar pared the gains it made in Asian deals against the currencies of Europe and Australia. As of now, the loonie is worth 1.3304 per euro and 0.8962 against the aussie, compared to early highs of 1.3279 and 0.8942, respectively. The next downside target level for the loonie is seen at 0.901 against the aussie and 1.337 against the euro. The euro-loonie pair closed trading at 1.3310 and the aussie-loonie pair at 0.9006 on Tuesday.
Looking ahead, the Euro-zone final first quarter GDP and the German factory orders for May are expected in the upcoming hours.
Canada's Ivey PMI for June is slated for release at 10:00 am ET.
There are no significant economic reports scheduled for release from the U.S. today.
News are provided by InstaForex.