U.S. Savings Rate Surges; Dollar Declines

Mukesh Buch
26 Jun, 2009
New York City

The U.S. dollar declined after China called for a world currency that is not tied to any country. The bond yields dropped after savings rate surged to 15-year high. Consumer prices in Japan fell sharply in May prompting worries that deflation may be anchoring in the economy.

[R]4:00 PM New York, 9:00 PM London, 6:00 AM Sydney – The U.S. dollar declined after China called for a world currency that is not tied to any country. The bond yields dropped after savings rate surged to 15-year high. Consumer prices in Japan fell sharply in May prompting worries that deflation may be anchoring in the economy.[/R]

Investors looking for quick U.S. economic and earnings were not comforted after the release of savings rate data in May. The highest savings rate in 15-years was another indicator that the economic recovery will be slow and painful.

The U.S. consumer income increased faster than spending in May that lifted savings rate to the highest level in 15 years. The spending increased 0.3% in month and income gained at 1.4%. Excluding social security payment related to social security and lower taxes, the income declined. The wages and salaries fell 0.1% in May.

Savings rate surged to 6.9%, last seen in 1993.

KB Home led the decliners in the S&P 500 index with a loss of 4.0%. Accenture Ltd third quarter net down 5.4% on lower revenue. The Finish Line, Inc falls to loss in first quarter. KB Home second quarter net falls.

The dollar dropped against all major international currencies after People’s Bank of China reiterated its preference for a currency that is not linked to any nation. The call comes after China has amassed $1.7 trillion and may face shrinking value of its hoarding as the U.S. embarks on high fiscal deficit. The dollar gained against euro to $1.40 but 10-year Treasury bond yields dropped.

UK stocks edged lower. The Bank of England report suggested that banks are in better conditions than they were six months ago. Jaguar and Land Rover may face more job losses and plant closures. Berkeley annual net falls 38% and net revenues declined 29%.

Consumer prices in Japan fell sharply in April sparking worries that deflation may be anchored in the economy. The fall in exports, weak job markets and weak consumer demands are spurring price declines. Bridgestone revised its outlook for first half loss. Nippon Electric estimated Q1 profit.

Stocks in India surged as investors expect higher infrastructure spending in the upcoming budget. The latest move by NSE to reduce lot sizes for stock futures also contributed to stock gains. Tata Motors and Tata Steel reported weaker than expected results. Jaguar and Land Rovers sales plunged.

North American Markets

Dow Jones Industrial Average decreased 34.01 or 0.4% to a close of 8,438.39, S&P 500 Index decreased 1.36 or 0.2% to 918.90, and Nasdaq Composite Index edged higher 8.68 or 0.5% to close at 1,838.22. Toronto TSX Composite Index closed up 33.91 or 0.3% to 10,389.76.

Of the stocks in S&P 500 index, 211 increased, 282 declined and 6 were unchanged.

KB Home led the decliners in the S&P 500 index with a loss of 9.2% followed by losses in CIT Group Inc of 4.9%, in Tellabs Inc of 4.4%, in Windstream Corp of 4% and in Micron Tech of 3.8%.

Eastman Kodak led gainers in the S&P 500 index with a rise of 14.4% followed by gains in Sprint Nextel Company 6.6%, in Convergys Corp of 5.6% and Prologis of 5.4%.

South American Markets Indexes

Mexico Bolsa Index increased 212.52 or 0.9% to 24,458.23. Brazil Bovespa Stock Index decreased 29.20 or 0.1% to 51,485.61.

Argentina Merval Index increased 0.1%, Chile Stock Market Select index edged higher 1.1%, Peru Lima General Index decreased 0.8% and Colombia IGBC General Index declined 0.1%.

Europe Markets Review

In London FTSE 100 Index closed lower 11.56 or 0.27% to 4,241.01, in Paris CAC 40 Index decreased 33.37 or 1.05% to close at 3,129.73 and in Frankfurt DAX index lower 24.09 or 0.50% to close at 4,776.47. In Zurich trading SMI increased 14.69 or 0.27% to close at 5,375.99.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed higher 81.31 or 0.83% to 9,877.39, Hang Seng index in Hong Kong increased 325.23 or 1.78% to 18,600.26, CSI 300 index in China higher 10.50 or 0.34% to 3,128.42. ASX 200 index in Australia increased 47.80 or 1.24% to 3,903.80. The KL Composite index in Malaysia closed higher 1.66 or 0.15% to 1,075.77.

The Kospi Index in South Korea increased 1.80 or 0.13% to close at 1,394.53.SET index in Thailand closed higher 5.20 or 0.88% to 595.80 and JSE Index in Indonesia decreased 3.98 or 0.19% to 2,040.19. The Sensex index in India increased 419.02 or 2.92% to 14,764.64.

Commodities, Metals, and Currencies

Crude oil decreased $0.87 to close at $69.36 a barrel for a front month contract, natural gas increased 14 cents to $4.12 per mBtu and gasoline decreased 2.33 cents to 187.50 cents.

Wheat futures closed up 1.25 cents in Chicago trading to $5.34 a bushel. Sugar decreased 0.39 cent in trading at 17.31 cents a pound. Soybean future closed down 11 cents to $9.91 a bushel.

Gold decreased $0.30 in New York trading to close at $939.20 per ounce, silver closed up $0.05 to $14.08 per ounce and copper for the front month delivery decreased 1.85 cents to $2.29 per pound.

Dollar edged lower against euro to $1.4056 and closed up against the Japanese yen to 95.18.

Yield on 10-year U.S. bond was unchanged to 3.53% and with 30-year maturities closed up at 4.34%.