May 13, 2013 / 8:30 PM / 5 years ago

GLOBAL MARKETS-Stronger U.S. dollar hits oil, gold; stocks pause

* Dollar edges up after G7 backs Japan's easing efforts
    * Dollar hits fresh 4-1/2-year highs versus yen
    * Oil, gold prices fall on dollar's strength
    * U.S., European stocks stall at recent highs

    By Richard Leong
    NEW YORK, May 13 (Reuters) - The dollar strengthened against
the yen and other major currencies on Monday after the Group of
Seven backed Japan's efforts to spur growth through aggressive
asset purchases, while  oil and gold prices fell on the stronger
    A surprise rise in U.S. retail sales in April supported
views that the U.S. economy, the world's biggest, remains
resilient. The optimistic tone to the data supported the
dollar's recent strength, and caused Goldman Sachs and JPMorgan
to upgrade their view on second-quarter growth. 
    "The dollar's strength from last week carried over into
today's trading, helped by the retail sales data, which pushed
the dollar higher across the board," said Win Thin, global head
of emerging market currency strategy at Brown Brothers Harriman
in New York.
    On Wall Street, the broad S&P 500 index nearly reversed
early losses on profit-taking following last week's stellar run
to record highs, while weakness in the top European banking
sector knocked the region's share prices lower.  
    "The value of the dollar has weighed on the prices of all
commodities, especially the more sensitive ones such as oil and
gold," said Harry Tchilinguirian, head of commodity market
strategy at BNP Paribas.    
    A stronger dollar makes dollar-denominated commodities such
as oil more expensive for holders of other currencies.
    The renewed optimism on the U.S. economy after the retail
sales data drove down prices of Treasuries, a traditional
safe-haven. In over a week, the yield on the 10-year note has
risen 0.30 percentage point from its lowest level of the year
following the better-than-expected April jobs report and the
dollar's surge against the yen.
    The dollar, which has risen 5 percent against a
basket of major currencies since February, and double that
versus the yen, looked unlikely to buckle after G7 officials
meeting over the weekend in Britain showed little concern about
the Japanese currency's slump. 
    The dollar index last traded up 0.17 percent at 83.278,
within striking distance of its highest level of the year set
last week.
    The greenback hit a 4-1/2-year high of 102.14 yen in Asian
trading, but ended the day little changed at 101.84 yen 
following the latest U.S. retail sales figures. The euro 
edged up 0.08 percent against the dollar at $1.2969 after
hitting a five-week low versus the greenback last week. 
    "Yen selling will have been encouraged by the outcome from
the G7 meeting, where officials reiterated that they will
tolerate yen weakness as long as it results from the use of
domestic instruments to stimulate the Japanese economy," said
Lee Hardman, a currency analyst with Bank of Toyko-Mitsubishi.
    Brent oil prices settled down $1.09 or 1.05 percent
at $102.82 a barrel, with ample supply weighing on sentiment as
well as the stronger dollar. U.S. oil futures settled down 87
cents or 0.91 percent at $95.17 a barrel. 
    Weaker-than-expected industrial output data from China also
helped push oil prices lower. London copper, however,
climbed 0.09 percent to $7,382 a tonne, as the data raised hopes
that monetary authorities in the world's biggest metals consumer
may embark on further easing to underpin demand. 
    China's annual industrial output grew 9.3 percent in April,
up from a seven-month low of 8.9 percent in March but still
missing market expectations for 9.5 percent expansion.       
    Spot gold, often bought as an alternative safe-haven
to the dollar, fell 1.17 percent to 1,430.61 an ounce. 
    With the Standard & Poor's 500 index having closed at
a record high on Friday and European shares starting the week at
five-year highs, investors had reason to cash in some gains as
worries about another spring "swoon" persisted. 
    The Dow Jones industrial average ended down 26.81
points, or 0.18 percent, at 15,091.68. The Standard & Poor's 500
Index finished up 0.07 point, or 0.00 percent, at
1,633.77. The Nasdaq Composite Index closed up 2.21
points, or 0.06 percent, at 3,438.79. 
    The pan-European FTSEurofirst 300 index closed down
0.2 percent at 1,231.05, while the MSCI global index
 was down 0.05 percent at 374.04, only a few
points from the near five-year peak set last week.
    In the bond market, benchmark 10-year Treasury notes
 ended 5/32 lower in price to yield 1.919 percent,
just below a six-week high in yield set earlier.
    German Bund futures were up 0.1 percent at 144.82.
    Italy's three-year debt costs fell to their
lowest level since January at an auction on Monday as the
backstop from the European Central Bank fed demand for bonds of
the euro zone's heavily indebted members. 
    The head of Italy's central bank, Ignazio Visco, who is also
a policymaker of the European Central Bank, suggested in an
interview with CNBC television that the ECB could cut its
deposit rate below zero. His comments lifted Bund futures from
their lowest levels in more than a month after last week's
decline on upbeat euro zone and U.S. data. 
    If the ECB were to push its deposit rate into negative
territory, banks would effectively be charged for parking any
spare cash they do not lend, something that analysts believe
would send investors into other more profitable ultra-safe
assets such as Bunds.

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