US Dollar, Japanese Yen Rise as Stocks Drop on China Growth Fears

Key Overnight Developments

• Japan’s Jobless Rate Unexpectedly Rises, Industrial Production Falls
• Dollar, Yen Gain on Risk Aversion as Stocks Drop on China Growth Fears

Critical Levels



The Euro and the British Pound fell 0.1 percent apiece against the US Dollar as stocks declined in overnight trade, boosting demand for the safe-haven greenback. The Japanese Yen also advanced against the spectrum of its major counterparts. The MSCI Asia Pacific regional benchmark stock index fell 0.6 percent after the Conference Board downgraded their outlook for Chinese economic growth and Citigroup Inc said the East Asian giant’s exports face “strong headwinds”. Safety demand also pushed the yield on 2-year Treasuries to a record-low 0.6 percent.

Asia Session Highlights



Japan’s Jobless Rate unexpectedly rose for the fourth month to 5.2 percent in May as the economy shed 240,000 jobs while Household Spending fell 0.7 percent from a year before, marking the second consecutive decline. The figures underscore Japan’s dependence on overseas demand to drive the economic recovery as a lackluster labor market weighs on incomes and discourages spending. On balance, this amounts to an ominous outlook for the world’s second-largest economy as China – the key engine of export growth since the beginning of last year – steps up efforts to slow its economy amid fears of asset bubbles and runaway inflation. Indeed, preliminary Industrial Production figures showed output fell 0.1 percent in May, the first drawdown in three months, with further weakness forecast for June and July.

Euro Session: What to Expect



The economic calendar is relatively tame in European hours, leaving the door open for risk sentiment to remain as the primary driver of price action. US stock index futures are trading down 0.3 percent, pointing to continued risk aversion that is likely to continue encouraging demand for the safety-linked US Dollar and Japanese Yen at the expense of their major counterparts.

Scanning the docket of scheduled event risk, UK Net Consumer Credit is expected to print at 0.1 billion pounds in May, erasing an equivalent decline in the previous month, while Mortgage Approvals rise for the third consecutive month to 51,000 over the same period. Separately, Euro Zone Consumer Confidence is set to decline for the second month amid continued concerns about the growth implications of rising borrowing costs and austerity measures as the region grapples with soaring debt levels. Switzerland’s UBS Consumption Indicator is also on tap.

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