While you were sleeping: Euro zone data weak, India questions US$ dominance

Monday 6th July 2009

Europe’s services industry deepened its slump last month while retail sales fell more than expected, adding to concerns that the global economy won’t recover quickly.

The gauge of services activity in the euro region fell to 44.7 in June from 44.8 in May, according to a Markit Economics report on Friday. A reading below 50 in the survey of purchasing managers signals a contraction.

Retail sales in the euro zone fell 0.4% in May. Still, business sentiment picked up in May, with an index of expectations rising to 62.3 in June, a two-year high, from 59.1 in May's.

US markets were closed on Friday for the Fourth of July holiday. Figures from the US and Europe the previous day showed the unemployment rate climbed to 9.5%.

India joined China in voicing concern about the US dollar’s role as reserve currency. An adviser to Indian Prime Minister Manmohan Singh told Bloomberg the world’s second-most populous nation should diversify its US$264.6 billion foreign-exchange reserves, reducing holdings of dollars.

Economic adviser Suresh Tendulkar said the dominance of US dollar assets was “a problem for us,” according to the report.

Singh will attend the summit of the Group of Eight next week, where China and Brazil have been invited to attend. China and G-8 member Russia have been urging leading nations to reconsider how a reserve currency operates in global markets.

As the talks have neared, China and Russia have stepped up calls for a rethink of how global currency reserves are composed and managed, underlining a power shift to emerging markets from the developed nations that spawned the financial crisis.

Zeng Peiyan, head of a Chinese economic think tank, said in a speech in Beijing that a currency “is likely to become a problem” in the face of burgeoning budget deficits and current account gaps. Sergei Prikhodko, an aide to Russian President Dmitry Medvedev, said discussion on a new global reserve currency would “resume” at the G-8 meeting.

Still, Reuters reported that the G-8 as a group isn’t enthusiastic about mounting a challenging to the greenback’s status at the summit. It quoted a source as saying there is broad consensus in the G-8 that it is “not the time to experiment with reserve currencies, however attractive it might seem."

The euro strengthened against the dollar on Friday in what was described as thin trading with US markets closed for the Independence Day holiday.

The euro rose 0.2% to $1.3961 against the dollar and lifted by 0.4% to 134.27 against the yen. The greenback edged up 0.1% to 96.03 yen.

The Dollar Index, which tracks the greenback against a basket of six currencies, rose 0.4% to 80.45.

Crude oil dropped below US$66 a barrel on concern the global economy will remain weaker for longer than expected.

US crude dropped US$1.22 to US$65.51 a barrel in lighter than normal volumes due to the Independence Day holiday.

Copper fell in London on concern weaker US and European jobs markets signal a prolonged economic slump which will crimp demand for industrial metals.

Copper for three-month delivery slid 1.3% to US$4,970 a metric ton on the London Metal Exchange.

Gold for immediate delivery edged up 0.3% to US$932.18 an ounce on Friday in London.

China criticised the prospects of tariffs of carbon-intensive exports that the US has been mulling. China said carbon tariffs would breach World Trade Organisation rules and “seriously hurt the interests of developing countries," according to its Ministry of Commerce.

China’s state-owned Beijing Automotive offered to buy a stake in General Motors’ Opel unit, in a rival proposal to one by Canada’s Magna, Reuters reported, citing sources.

The Chinese automaker made an indicative, non-binding offer for Germany's Opel, with a binding offer by mid-July, according to Reuters.

Magna, backed by Russian partners, is the frontrunner to buy Opel, the report said. Belgium’s RHJ International is the third bidder.

The Dow Jones Stoxx 600 fell 0.02% to 204.08 in Europe on Friday, with volumes subdued in the absence of U.S. market participants.

The UK’s FTSE 100 rose 0.1% to 4236.28 and Germany’s DAX 30 fell 0.2% to 4708.21. France’s CAC 40 rose 0.1% to 3119.51.

Businesswire.co.nz

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