Stock Preacher

The US$ hit a 5 month low against a basket of major currencies on Friday and the euro rose above US$1.41 for the first time this year as investors bought higher-yielding currencies and assets on hopes of a global economic recovery. Sterling approached US$1.62, almost an 8 month high, and capped its best month since 1985, while data showing the US economy shrank less than expected in the first quarter lifted global stocks and dulled the dollar’s safe-haven allure. Concern about the expanding amount of debt needed to fund a record US$1.8T US budget deficit added to dollar woes this week and put the benchmark 10-year Treasury yield en route to its biggest 2 month spike since 2004. Those worries amplified a report that South Korea’s National Pension Service intends to reduce exposure to US government bonds and equities in its 5 year portfolio. “There’s a visceral concern about the debasement of the US currency because the United States has a lot of debt to finance” and may have to print more money to do it, said Alan Ruskin, chief international strategist at RBS Greenwich Capital in Greenwich, Connecticut

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US bank Wells Fargo & Company forecast a record profit last week, South Korea steered clear of recession, and Chinese export data beat expectations, all offering hope that the worst of the financial crisis had passed. Encouraging data on US trade and jobless claims helped Wall Street stocks end up for a fifth week on Thursday, while White House economic adviser Lawrence Summers predicted the economy would emerge from a sense of “freefall” in months as stimulus and rescue efforts took effect.

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Asian shares rose last Friday, with South Korean stocks hitting a 6-month high after the country averted recession in the first quarter, as a Wall Street rally boosted risk demand around the region and dented the yen. Many financial centers were closed for a long weekend, making investors nervous that gains made may not be sustained next week when many major US companies report quarterly earnings. The Nikkei hit a three-month closing high for the second day in a row, though off the day’s peak reached above the psychologically key 9,000 level, as banks tumbled after Sumitomo Mitsui Financial Group warned of a net loss for the financial year just ended, reviving fears for other megabanks.

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