Tags: Dollar | Low | Dismal | US | Economic | Outlook

Dollar Falls to Three-Month Low on Dismal US Economic Outlook

Thursday, 29 Jul 2010 12:37 PM

 

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Robust quarterly earnings from Europe drove world stocks higher on Thursday, while the dollar hit a three-month low on the back of weak U.S. data and a downbeat assessment of the economy from the Federal Reserve.

Investors took heart from results for companies including Royal Dutch Shell, Rolls Royce and BAE Systems, while there were gains for French service group Capgemini and France Telecom, Europe's third-largest telecom operator by market cap.

Global equities measured by MSCI All-Country World Index added 0.3 percent, and the Thomson Reuters global stock index put on 0.4 percent.

"Second-quarter results are better than expected and it supports the market, but the rise is capped by the rather poor macro data," said Emmanuel Morano, head of equity management at fund management firm UFG-LFP in Paris.

"The big question is: Is this a pause in the economic recovery or are we heading for a brutal landing? The bond market seems to be pricing in the pessimistic scenario, while equities send a more optimistic signal. Who's wrong? Tomorrow's U.S. GDP figure should shed light on this."

The pan-European FTSEurofirst 300 advanced 0.5 percent, also helped by improving eurozone economic sentiment, which rose to a 28-month high. Tokyo's Nikkei average, however, fell 0.6 percent after hitting a two-week closing high the previous session.

UBS raised European shares to "neutral" from "underweight," citing "compelling valuations" as one of the reasons.

MSCI Europe carried a one-year forward price-to-earnings — a gauge of valuations — of 10.27, cheaper than the S&P 500, MSCI emerging benchmark and MSCI Japan, according to Thomson Reuters DataStream.

The one-year forward P/E for the S&P 500 stood at 11.92, and 10.5 for MSCI emerging market index and 13.87 for MSCI Japan.

U.S. stock index futures rose 0.4 to 0.5 percent, indicating a firmer start for Wall Street.

Wednesday's weak U.S. durable goods figures, however, added to concerns about the outlook for the world's largest economy.

The Fed's Beige Book, a summary of national economic conditions, also showed activity was not as robust in a few districts and had lost steam in recent weeks.

California's declaration of a state of emergency over its finances also hurt the dollar, which fell 0.7 percent against a basket of currencies and hit a three-month low.

The euro rose 0.7 percent to $1.3072, reaching an 11-week high, and sterling touched a five-month peak in European trade at $1.5656. By midday in London it stood at $1.5632, still up 0.3 percent on the day.

"U.S. economic data is unequivocally weak, yet concern over Europe's ability to execute necessary fiscal austerity together with its associated negative economic impact can combine to see the euro again emerge as an underperformer," Chris Turner, head of FX strategy at ING in London, said in a note.

Yields on 10-year benchmark Bunds rose 1 basis point to 2.737 percent, while those on 10-year U.S. Treasuries steadied at 2.9993 percent.

© 2014 Thomson/Reuters. All rights reserved.

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