Interview: Currency
>> bright and sunny in the sydney harbor. isolated shower or two but mostly sunny in western sydney. the high temperature there is 23 degrees, quite a contrast with what we see out the window in tokyo where it’s raining with a chance of snow today. there is the weather. the dollar falls to a record against the euro for a fourth straight trading day. traders and investors speculate european and u.s. officials will tolerate further declines in the u.s. currency. the dollar is headed for its third straight year of losses against both the yen and euro. joy masters joins us from sydney on the phone, a currency strategist with macquarie bank. u.s. consumer confidence, we saw that jumping beyond analysts’ estimates in december but that didn’t give a lot of support to the dollar. sentiment out there seems bearish. what’s going on?
>> i think that’s right. i think the underlying sentiment remains against the u.s. dollar. mid to late december, we saw profit-taking going up providing support for the dollar but with that over, we have seen a return to negative sentiment. fresh highs on the euro and the consumer confidence number only seeing the euro pull back 50 points or so before finding a solid base.
>> what’s the impact of the stronger euro? italian business confidence dropped to a nine-month low.
>> you see the impact of the euro across almost all of their economic statistics and given that the only sector of most of those economies that had been growing was exports, this will have a significant effect on their economy, which we’ve seen in april when the euro pushed up to that fresh stage. on the inflation side, that is counteracted somewhat by oil prices. policymakers there seem remarkably relaxed which may be a reflection on their tendency to focus more on inflation than growth, but also the number of people involved in decision making in europe and the fact that this is a new problem for them to face.
>> jo-ann, u.s. exporters probably feeling the benefit of the u.s. dollar. at what point is the u.s. currency going to be problematic for the u.s. economy?
>> the u.s. faces a different set of economic circumstances in the sense that the export sector is less important for them than it is for europe and australia and asian economies. historically, the u.s. dollar has weakened considerably in the past 12 to 18 months but historically, is not at crisis levels yet.
>> what about the u.s. government? is it betting on a weaker dollar to help with the record current account deficit?
>> while that’s not one of the official lines, there’s no doubt the administration is happy to see a weakening of the u.s. dollar and would happy to see more. providing the markets remain orderly and liquid, i think they’d be happy to see current dollar depreciation.
>> if we see keep seeing further weakness, do you think this is a good time to jump into the yen?
>> look―i’d be cautious. i think there is more downside for the u.s. dollar but i don’t believe it’s open ended. in fact, we have a story mid 2005 that cease the u.s. dollar find a basis to turn around as markets become more comfortable with the level of the current account deficit and start to focus on america’s relatively growth outperformance and what will increase with the relatively preferential interest rate structure. i’m not convinced dollar-yen is sustainable below 100 and in that sense, perhaps over the next couple of months, we’d look for the dip to buy.
>> we saw overseas investors bought japanese stocks every week but nine this year. do you think the yen is headed for a fourth advance in 2005?
>> i’m sorry, i didn’t catch the last part of that?
>> i wonder if the yen will head for a fourth advancing year in 2005?
>> yeah, look―i think it will test lower in the first half of the year and certainly if the last couple of days is any hint for the beginning of 2005, certainly push towards 100 looks likely. but i’m not convinced it’s really sustainable below 100.
>> and when do you think the m.o.f. will start telling the b.o.j. to sell yen?
>> that’s a question on the minds of traders each and every day. and certainly as you head towards 102, that becomes extremely likely and we saw a solid bounce out of dollar-yen out of that sub 102 area a few weeks ago. euro-yen is at historic highs and that will provide a little comfort. i think the m.o.f. would be uncomfortable to see the dollar-yen below the 101.50 area.
>> joann masters with macquarie bank. still to come, more americans say jobs are plentiful. boosting u.s. consumer confidence to a five-year high.
>> we saw u.s. consumer confidence jump in december. it at thisive-month high, beating out some of the most optimistic forecasts. the conference board’s index rose to 102.3 from a revised 92.6 in november, which was also stronger than first reported. expectations for the economy over the next six months climbed to the highest level since july. let’s get a closer look at the health of the u.s. economy and speak with alan ruskin, head of research at forecast. were you surprised by the survey results?
>> yes, i was. i was thinking that we would see some improvement but nothing like the improvement that we did see. there were reasons one could be at least a little optimistic about consumer confidence to the extent that we’ve obviously seen the stock market stronger since the election. we’ve seen oil prices coming down and you’ve got rid of election uncertainty. all of that was going to contribute to stronger numbers but the strength did catch me by surprise.
>> expectations, really, for the economy in the next six months were also higher. do you think that means u.s. consumers will continue to spend like they did in the last three years in 2005?
>> well, i certainly don’t think you want to use that expectations data as any indication of the future. in fact, what one finds if one uses econmetrics techniques, at least, is that the consumer confidence data in general is at best a coincident indicator of what’s happening to the consumer at this point in time. i would have thought that in general the consumers’ fundamentals are really what one could consider so-so, meaning that real disposable income growth will probably be hovering around 3%, leading to consumption growth in that order, about 3%. we probably won’t see much additional decline in the savings ratio, close to zero to begin with. and it will lead to moderate growth for the economy as a whole.
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Listen Interview: Tsunamis
>> more than 50,000 people have died from sunday’s tsunamis that swept across countries along the rim of the indian ocean. thousands remain missing after the magnitude 9 earthquake off the coast of indonesia caused giant waves that reached as far as somalia on africa’s eastern coach. officials say millions are homeless and the death toll may rise further. eight agencies are organizing what may be the most complex relief effort ever. more than $100 million in aid has been promised. u.n. officials say dozens of airplanes are carrying food, medicine, water, purification tablets and other things to countries including indonesia, india, thailand and other countries in southeast asia. the u.n. says the main concern is water and sanitation. in sri lanka alone, more than 18,000 people are dead. giant waves caused a train to just be flung off the tracks. more than 1,000 were killed, among those, more than 100 foreigners. more than 4,300 are said to be done in india. sonia gandhi has been visiting areas devastated by the tsunamis. she says the biggest challenge is to help surseveres get back on their feet.
>> we have seen the destruction. we are absolutely heartbroken for the suffering of those and empathize deeply with those who have lost deer ones but one of the biggest challenge for all of us is to see the rehabilitation of the people, especially the fishermen who have lost their lives and loved ones and other.
>> in indonesia, more than 27,000 are dead. the death toll jumped after bodies were collected from a strict that was not previously accessible. the dollar hit another record low against the euro. speculation persists u.s.und european officials will tolerate further decline in the currency. u.s. dollar unchanged against the yen, 103.08, a slight drop against the euro. it had dropped as low as 1.3644. the dollar heading now for its third straight annual decline against the euro and the yen. u.s. markets cuched three-year highs―touched three-year highs after a report shows consumers are more confident about the economy and job prospects. the consumer confidence reading came in at 102.3 after a revised 92.6 from november. that beat even the most optimistic forecasts, u.s. consumers expecting to earn more in the next six months and many expecting to spend more, as well. more than 29% of those surveyed say they will be buy things like appliances in the next six months, up from 25% in november. the dow and s&p closed higher .73%, the nasdaq up more than 1%. retailers gained after a report showed sales surged in the run up to the christmas holiday, making up for some of the weaker results we saw earlier in the month. sales rose 4.3% through the week to december 25 compared with a year earlier as last-minute holiday shoppers who were attracted by discounts offered by sears and macy’s. analysts say demand for luxury items boosted sales and people purchased gift certificates, which will likely boost results later this week. the 10-year note yield inched toward a three-week high after the consumer confidence report. rising confidence may boost spending and lead to inflation, which is bad for bonds. shares of all nippon airways has be active today. the carrier bought a 3.4% stake in bit wallet, operator of the eddie monetary system.
>> a.n.a. paid $18.9 million for the stake at bit wallet, promoting the product at airports. separately, it will add a boeing 737 freighter in january 2006 to expand capacity for rising cargo command at home. another stock to watch is toyota motor. it may buy 10% of misawa homes holding in an attempt to answer the government’s call for help to keep the house builder running. toyota is japan’s biggest carmaker. it’ says the misawa stake will be minimum. toyota will build and sell houses with the company. and daiei, japan’s third largest retailer, will receive bank waivers, share writedowns and funds from sponsor companies totalling $6.9 billion as part of a bailout plan, having its equity cut. in korea, watch s.k. corp., south korea’s largest oil refiner. s.k.’s affiliate became its biggest shareholders, raising the stake in the oil refiner bringing s.k. group’s stake to 15.5%.
>> we’ll see you back here later on. south korea’s industrial production probably rose last month as exports of cars, chips and cell phones reached an all-time high. the government reports november factory output figures coming up in about 25 minutes. economists surveyed by bloomberg expect production in south korea rose .3%. coming up on the program, how far will european and u.s. officials let the dollar decline?
