Debt crisis shrinks international use of euro

Tuesday, July 2nd, 2013 | Finance News

FRANKFURT, Germany (AP) — International use of the euro slipped last year because of the debt crisis in Europe, while the U.S. dollar held its own as the world's leading currency for reserves held by central banks.

Currencies not traditionally used as reserves, such as the Canadian and Australian dollars, gained in favor as those countries enjoyed steady growth and lower debt than major economies.

The European Central bank said Tuesday that the euro's share among the currency reserves held globally by central banks fell to 23.9 percent in 2012 from 25.1 percent the previous year. The dollar's share was little changed at 61.9 percent.

The ECB said the financial crisis that has afflicted the 17-country eurozone was a factor discouraging use of the euro for reserves, which are often held in the form of government bonds. Lending across borders in the eurozone has dropped, diminishing the liquidity that reserve holders like to see. Lower liquidity means there are fewer buyers and sellers readily found.

The eurozone countries have struggled with heavy levels of public debt — Greece, Portugal, Ireland and Cyprus have needed financial rescue. Even larger economies like Spain and Italy have worryingly high debt. Concern over that debt eased only after the European Central Bank came up with a plan to buy the government bonds issued by countries that promise to reform.

In its annual report on international use of the euro, the ECB also found that there was less borrowing in euros internationally by companies because they could get lower interest rates by selling bonds denominated in U.S. dollars.

Countries hold reserves of foreign currency to help backstop their own currencies' value in case of a financial crisis and for trade purposes. The country issuing the reserve currency can benefit because demand from abroad supports its exchange rate and can mean lower borrowing costs for the government, as has been the case with the U.S. dollar in its role as the leading reserve currency.

Demand for dollars in the form of U.S. Treasury bonds by other countries — such as China — helps keep down the interest rate that the U.S. government pays to borrow. Money that is not spent on interest can be spent on other things, or saved.

A key finding of the report was that non-traditional reserve currencies such as the Canadian dollar and the Australian dollar are in greater demand because of their growing economies and better public finances. There have been concerns about government debt not only in Europe but also in the countries that issue the world's other traditional reserves: the U.S., Japan and Britain.

The category of "other" currencies saw its share of officially disclosed reserves increase from 5.7 percent to 6.1 percent, ahead of both the yen at 3.9 percent and the pound sterling at 4.0 percent. The ECB said that category's share is the highest since the early 1970s, when the earlier international currency system set up at the Bretton Woods conference in 1944 collapsed.

The ECB said, however, that the use of such non-traditional currencies might slow if major economies start reducing debt and deficits. Such currencies are also of limited use, the ECB said, because they are less liquid — there are fewer debt securities and other ways of holding them available, meaning finding a seller or a buyer can be harder.

The ECB said the Chinese currency, the renminbi, had shown impressive gains in foreign trade, with the share of trade in goods settled in renminbi rising from near zero to almost 10 percent in 2012. The ECB said its widespread use as a reserve currency was hindered by China's lack of fully developed financial markets and by its investment and foreign exchange controls.

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Strong June seen for auto sales, led by pickups

Tuesday, July 2nd, 2013 | Finance News

DETROIT (AP) — U.S. buyers snapped up new cars and trucks in June at a pace not seen since before the recession.

Continuing demand for big pickups helped boost sales for Detroit's automakers. Ford said Tuesday that its sales rose 14 percent, while Chrysler's were up 8 percent. Volkswagen's sales fell 3 percent.

Other automakers will report sales later Tuesday.

Analysts say they don't see much that could slow the sales momentum of the first six months. The factors that juiced sales — low interest rates, wider credit availability, rising home construction and hot new vehicles — are likely to remain in place. So far, hiccups in the stock market, higher taxes and fluctuating gas prices haven't dampened demand.

"I think the fundamentals for continued growth in the new vehicle sales industry are intact," Chrysler's U.S. sales chief, Reid Bigland, said last week.

Analyst estimate that U.S. auto sales rose 6 percent to 8 percent in June compared with the same month last year. The auto pricing site TrueCar.com predicts that dealers sold cars and trucks at an annualized rate of 15.7 million last month, the best rate since December 2007.

Sales of pickups — which have been selling at a rate three times faster than the rest of the industry has — continued at a strong pace in June. Ford sold just over 68,000 F-Series trucks, up 24 percent from last June and the best June for trucks since 2005.

Chrysler Group sold nearly 30,000 full-size Ram pickups, up 24 percent from last June. Small businesses have been replacing their aging trucks as home construction has picked up.

Young graduates may have contributed to a rise in small car sales, said Kelley Blue Book analyst Alec Gutierrez. Gas prices, which averaged $3.60 a gallon nationwide in June and were higher than a year ago, also may have caused some buyers to look for more fuel-efficient models, he said.

Sales of Ford's recently updated Fiesta subcompact more than doubled to 9,363, while Chrysler sold nearly 6,500 Dodge Dart small cars.

Consumer confidence hit a six-year high in June. And the Standard & Poor's 500 index had its best first half since 1998, up 12.6 percent, although there was some volatility late last month.

At the same time, auto loan rates remained near historic lows in June. The rate on a four-year new-car loan is averaging 2.7 percent, according to Bankrate.com.

The rate could start rising — slowly — by the end of this year. Federal Reserve Chairman Ben Bernanke said last month that the Fed later this year may slow a bond-buying program that has suppressed long-term interest rates.

Bernanke's comments didn't affect June sales, analysts said. It often takes buyers six months or more to research and buy a new car, and a stray comment usually isn't enough to sway them. But if the Fed acts as planned, buyers worried about higher interest rates could rush to buy by the end of this year.

Ford said two of its best sellers, the Fusion sedan and Escape SUV, were flat compared with last year, when Ford was discounting older models to make way for the updated ones that are now on sale. Ford's Lincoln luxury brand was down 1 percent.

Chrysler, majority-owned by Fiat SpA of Italy, also had some weak spots. Jeep sales were flat as the company halted production of the Liberty to get ready for the launch of the new Jeep Cherokee in August.

Jeep may also have been squeezed by Chrysler's public flap with the government last month over the safety of some older-model Jeeps. And sales for the Chrysler and Fiat brands both rose 1 percent.

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Factory orders rise, hint at stability in manufacturing

Tuesday, July 2nd, 2013 | Finance News

WASHINGTON (Reuters) - New orders for factory goods rose for a second straight month in May, adding to tentative signs of stabilization in manufacturing after a recent slowdown.

The Commerce Department on Tuesday said new orders for manufactured goods increased 2.1 percent. April's orders were revised to show a 1.3 percent rise instead of the previously reported 1 percent advance.

Economists polled by Reuters had forecast new orders received by factories increasing 2 percent.

Manufacturing slowed in recent months, weighed down by deep government spending cuts and slowing global demand, especially in China and the recession-hit Europe.

However, there are signs the loss of momentum has run its course or is at least starting to ebb.

Data on Monday showed a gauge of national factory activity bounced back into growth territory in June, with new orders pushing higher. That improving tone was also evident in reports last month showing a modest rise in factory output in May and a pick-up in business spending plans.

The Commerce Department report showed factory orders rose in most categories, though orders for motor vehicles fell 2 percent. However, new transportation orders jumped 10.9 percent.

Orders excluding the volatile transportation category rose 0.6 percent after edging up 0.2 in April.

Outside transportation there were gains in orders for machinery, computer and electronic products and primary metals. Orders for electrical equipment, and appliances and components orders also rose.

The department also said orders for durable goods, manufactured products expected to last three years or more, rose 3.7 percent instead of the 3.6 percent increase reported last week.

Durable goods orders excluding transportation were up 0.5 percent rather than 0.7 percent.

Orders for non-defense capital goods excluding aircraft - seen as a measure of business confidence and spending plans - increased 1.5 percent instead of the previously reported 1.1 percent rise.

Adding to the improving manufacturing picture, unfilled orders for factory goods rose 0.8 percent in May. Unfilled capital goods orders excluding defense and aircraft were up 1 percent. Shipments rebounded 1 percent after declining for two consecutive months.

Stocks of unsold factory goods were flat which should help the sector in the long-run, but probably not be supportive of economic growth this quarter. Factory inventories account for more than a third of business inventories.

The inventories-to-shipments ratio slipped to 1.30 in May from 1.31 in April. The unfilled orders-to-shipments ratio fell to 6.21 from 6.28 in April.

(Reporting By Lucia Mutikani; Editing by Neil Stempleman)

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