NEWS / Foreign Exchange

German Producer Prices Decline to Multi-Month y/y Low

- The European indices are currently trading lower in the session on declining commodity prices as well as concerns that the People??™s Bank of China may have to raise interest rates in the near future in order to tame excessive economic growth.

- European government bonds are trading higher across the board as investors continue to rotate into bonds on fears that excessive Chinese growth may prompt the central bank to raise rates in the near future. Similarly in the UK gilts are also trading higher. The French treasury sold ?‚¬5.22B in 4.0% 2-year notes with an average yield of 4.11% and a bid-to-cover of 2.4.

- German producer prices for the month of March, which were expected to rise to 0.4% m/m, remained unchanged from February at 0.3% m/m. Producer prices declined more than expected y/y to 2.5%, their lowest level since September of 2004.

- Italian producer prices came in lower than expected for the month of February. Industrial orders were ??“0.3% m/m, below estimates of 1.3%, while industrial orders y/y were ??“2.5%, below estimates of 2.0%.

- The ECB said in its monthly report today that members still see upside inflation risks, pointing out that wage deals could pose ???significant??? inflation risks. The ECB said that it is important to look through-short term price volatility, reiterating that they will act in a firm and timely manner.

- Chinese GDP for the first-quarter was released during the European session overnight. GDP rose above estimates of 10.4% to 11.1% y/y, the second highest reading since the third-quarter of 1995.

- EUR/JPY USD/JPY trading lower as European bond redemptions commence today with the redemption of ?‚¬8.3B in Greek redemptions, Yen firming despite a downward shift in JGB yields over the past couple of days, and diminishing global liquidity concerns.

- GBP/JPY - Market chatter that Russian names were selling GBP/JPY ahead of the Chinese GDP data, and then taking profits upon the data release.

- JPY - The Swiss Central Bank announced overnight that it raised its Yen holding to ??297B at the end of the first-quarter from ??224.4B and the end of the fourth-quarter. The Swiss Central Bank also cut Dollar holdings to $11.5B from $12.3B for the same periods.

- General caution seen as investors fear that strong Chinese GDP data will encourage further tightening in Asia. (Chinese GDP was 11.1% for the first quarter, above estimates of 10.4%; it was the second highest reading since the first quarter of 1995)

- USD/CAD - trades around 5-month high ahead of today's CPI data as Canadian investors continue to invest in Canadian assets.  According to the Canadian stats office, international investors bought C$4.8B in Canadian assets during the month of February, a new 10-month high.

- JPY - The Swiss Central Bank announced overnight that it raised its Yen holding to ??297B at the end of the first-quarter from ??224.4B and the end of the fourth-quarter. The Swiss Central Bank also cut Dollar holdings to $11.5B from $12.3B for the same periods.

- General caution seen as investors fear that strong Chinese GDP data will encourage further tightening in Asia. (Chinese GDP was 11.1% for the first quarter, above estimates of 10.4%; it was the second highest reading since the first quarter of 1995)

- USD/CAD - trades around 5-month high ahead of today's CPI data as Canadian investors continue to invest in Canadian assets.  According to the Canadian stats office, international investors bought C$4.8B in Canadian assets during the month of February, a new 10-month high.