النقد الاجنب

نهاية بيع الدولا

2008-07-17T09:42:00.000-07:00

ومن سوء الرياح لا أحد اي ان ضربات جيدة. خلال الأسابيع القليلة الماضية كانت صعبة للثيران الدولار. الاخبار السلبيه تم الهبوط من الحجرات.

الازمة المالية في الولايات المتحدة قد اندلعت ، وجاب بها موجة من اخبار كارثيه. اسعار الاسهم الامريكية قد غرقت خلال المنخفضه المسجله في اذار / مارس. توقعات بشأن اسعار الفاءده من جانب بنك الاحتياطى الفيدرالى هي تراجع بسرعة. اسعار النفط والسلع الاساسية من الحجم الاجمالي للمجمع المتصاعد ، وعلاوة على ذلك فان البنك المركزي الاوروبي اسعار الفاءده التي اثيرت فعلا من جانب 0،25 نقطة مءويه في اجتماعه الاخير.

حتى الدولار وقد اثلج يترتب عليها من آثار سلبية في اطار الإخبار. ولكن ، رغم كل الصعاب الدولار لم يكن الموضوع الى النار بيع -- بل العكس!

وفي رأينا ان عددا من العوامل الحاسمه في الجولة بهدوء وانتقل تاريخيا bearish الموقف الى الدولار.

اولا وقبل كل شيء ، وهناك دلائل مبكره على ان الولايات المتحدة تحول تدفق رأس المال. العلل الاقتصادية وعلى الجبهة الداخلية هي في نهاية المطاف ان تؤثر على الولايات المتحدة اعتبارا من المستثمرين شهيه للاستثمار في الخارج. وهي الآن منشغلا اعادة اموالهم. وهذا يعني ان بيع الدولار إلى الضغوط التي تتعرض لها سببها تدفقات رأس المال هو جفاف وان الدولار الان فجاه على وجوه الطلب من جانب الاميركيين انفسهم. منذ الاميركيون في العالم اكبر مستثمر الأمة ، وهذا في غاية الاهميه بالنسبة لمستقبل قطعة منشار التخريم من الدولار

ويبدأ يحسن الاسكان ، ولكن في ظل ظروف مشبوه

2008-07-17T09:41:00.000-07:00

تبدأ الولايات المتحدة والاسكان (يونيو)
(يبدا) (رخص البناء)
الفعلي : 1066k 1091k
المتوقع : 960k 965k
السابق : 977k (ص +) 978k (ص +)

الولايات المتحدة الى أسوأ ركود في الاسكان على مدى ربع قرن يظهر علامات على الحياة ، متفاوتة. تبحث أعمق قليلا في تفاصيل بيانات اليوم على الرغم من ذلك ، يبدو أن هذا القطاع بالاضافة الى الركود في مكان. وافادت وزارة التجارة البناء الجديد على المشاريع السكنيه ارتفع 9،1 في المئة إلى 1،066 مليون دولار فى الشهر الماضى وحده وتيرة -- افضل بكثير من المتوقع حدوث انخفاض طفيف. لأسباب مماثلة ، يسمح للبدء في البناء الجديد وقفز 11،6 في المئة ، رغم ان الرقم هو ايضا الانحراف. البحث في تفاصيل التقرير ، كان هناك اذهب ملحوظا في منطقة واحدة -- الشمال الشرقي. أ 102،6 في المئة في نشاط البناء أذهب الى حد كبير نتيجة لتغيير قانون البناء فى نيويورك. وفي الواقع ، ان هذا الرقم كان ذلك النفوذ ، بحيث انها لو استبعدت ، من شأنه أن يبدأ فعلا انخفضت بنسبة 4 ٪. ما هو اكثر من ذلك ، بناء على عائلة واحدة كانت في احد المنازل فيما يتعلق منخفضه 17 سنة. وعند النظر الى الإحصاءات الاقليمية الأخرى ، والنشاط فى الغرب الاوسط وانخفض 10،5 في المئة ، الغرب مخنوق العودة 8،2 في المئة ، في حين ان الجنوب تميز متباعده 0،4 في المئة من التحسين. هذه الاحصاءات تؤكد الولايات المتحدة سوق الاسكان لم يجد من القاعده الى القمة. حتى على ثقة المستهلكين في تمويلها يكفي للتعويض عن ارتفاع معدلات الرهن العقاري وانخفاض قيمة المساكن ، وفرة المخزون في الأسواق العالمية وعلى ابقاء نشاط التشييد من الاكتئاب

ين اسباب فقدان الشركات الكبرى وعقد مقابل الدولا

2008-07-17T09:40:00.000-07:00

الولايات المتحدة جلبت الدورة انباء طيبة بالنسبة للاقتصاد كبير مع الارتفاع غير المتوقع في مجال الاسكان ويبدأ التقرير ، على نحو افضل مما كان متوقعا في حين كسب و JP Morgan من القطاعات المالية وساعد في قيادة التجمع لليوم الثاني على النحو المتشائم الشعور في حين تلتزم القيادة العليا المؤشرات التي تؤثر على اكثر الين أضعاف ما بدأت رحلة الارتفاع مقابل الدولار من مزيد مبيعات الاراضي. وفي الوقت نفسه استمرار الضعف في قطاع الصناعة التحويليه الان هو توفير نافذة للفرح لاقتصاد الولايات المتحدة.

الدولار لم يتمكن من الخروج بكثير من المستويات ومن ننجر وراء اليورو ليقترب من امس في اسفل قناة الاعلى. وفي حين ان 1.5830-20 يبرهن على انه دعما قويا كما اليورو المحاولات الراميه الى بناء قاعدة ومساعدة بعض الزخم مؤشرات عش ثانية للشراء لمحاولة الضغط فان مستويات 1،60 مرة اخرى. اليورو فى محاولة لزيادة ساعة الى المستويات العليا للمجموعة واين فشلت لخرق 1.5890s مرة اخرى لخرق إلى مستويات 1،59 مرة اخرى في حين ان مستويات 1.5910 التجاري اعلاه يفتح المجال لقوى المقاومة عند 1.5940.

وكان الاسترليني 2.0000 تحوم حول المستويات ، وتحديد انخفاض فى التجارة فى وقت مبكر 1.9976 في حين ان مستوى المقاومة في لجم 2.0040s الاعلى لاجبار الزوج فإن 1.9990s محاولة لجمع مزيد من الزخم ؛ لا يزال بقدر ما هو تجاري 1.9960s اعلاه تنص على انه ايجابي الزخم من اجل الزوج في حين ان اغلاق اليوم فوق 2.0020s قد يساعد على التحقق من الاعلى الى 2.0100 المحاوله مرة اخرى.

تباطؤ النمو الاقتصادي سوف ترويض التضخ

2008-07-13T03:43:00.000-07:00

المجلس الاقتصادي وأظهرت البيانات علامات التحسن المتواضع بعد الربع الاول الكءيبه في الاقتصاد الكندي الذي تعاقد معه 0،3 ٪ (ف / س ، السنوى) ، ويعزى ذلك أساسا الى ضعف في الهياكل وقوائم الجرد والسكنيه.

وفي نيسان / ابريل ، نشر قوي في الناتج المحلي الاجمالي 0.4 ٪ م / م كسب ، الامر الذي دفع الى نيس انطلاق الربع الثاني. الجانب المحلي للاقتصاد تحمل جيدا الى حد معقول ، وذلك بفضل الايرادات المتاتيه المكاسب في جزء كبير من السلع الأساسية الازدهار. الحاكم في كارني كالجارى للمعالجة ، ولاحظ انه "منذ عام 2002 ، ارتفاع اسعار السلع الاساسية التي ساهمت بنسبة 25 ٪ تحسنا في معدلات التبادل التجاري ، فهي وحدها التي كانت مسؤولة عن حوالى الثلثين من الحصول على 15 فى المائة فى متوسط نصيب الفرد الحقيقي من الدخل القابل لل ". الدخل مثل هذه المكاسب قد يؤيد نشاط تجارة التجزءه ، الذي لا يزال اكثر من 4 ٪ عن العام الماضي. السؤال الحقيقي هو كيف التباطؤ في الولايات المتحدة ستؤثر على قطاع التصدير فى كندا. وعلى هذه الجبهة ، ولا تزال الغيوم العاصفة المشءومه واقتراح التجارة ستظل تشكل عبئا على صافي الناتج المحلي الاجمالي حتى اوائل عام 2009. وهذا يعني ان الاقتصاد الكندي ما زالت ضعيفة ونتوقع نمو 1،9 في المائة في وس 3 ٪ فقط 0،8 في س 4.

تباطؤ الاقتصاد الكندي وسائل الناتج الفجوه ، التي هي الآن مغلقة ، قد تنتقل الى معتدلة فائض العرض في اشهر الصيف. ان ذلك سيستغرق بعض الضغط عن التضخم ، وهو ما يحد من الحاجة الى اي زيادات الاسعار الفوريه. على هذا النحو ، فإن أفضل وصفة في هذه الحاله هو البقاء على الهامش.

فإني وفريدي للمتاعب هي تفقد تفقد ل- الدولار الامري

2008-07-13T03:42:00.000-07:00

الدعوة الى الأسواق المالية نشاطا عمليا اليوم هو بخس. الجمع بين ارتفاع اسعار النفط والمشاكل مع فاني ماي وفريدي ماك تسبب تقلبات حاده في سوق العملات والاسهم. نقطة واحدة في الولايات المتحدة خلال جلسة تداول ، وقفز داو 200 نقطة في غضون دقائق ، دافعة يورو / الين الى رقم قياسي. كأن السوق في البداية بخيبه امل شديدة من قبل وزير الخزانة الامريكى بولسون احجام انزال فاني ماي وفريدي ماك ، ولكنها كانت مفاجاه سارة من قبل بيرنانك عرض للوصول الى شباك الخصم (الحالات الابتداءيه لأي مرحلة من فاني ماي وفريدي ماك مشاكل). ولكن تفاؤلهم لم تدم طويلا من اسهم واستأنفت الشريحه. المساله أكبر في الأسواق المالية الآن هو ما اذا كان الحق او لا فاني وفريدي كبير جدا ان تفشل؟ واذا كانت الحكومة في تكثيف للحيلولة دون انهيار تتحمل ستيرنز سحق من السوق ، وهي بلا شك خطوة فى لمنع انهيار في فاني ماي فريدي ماك أو أما لأنه إذا فشل فريق الخبراء العلميين ، وسيتعين على الامريكيين تحمل عبء.

بن بيرنانك رئيس بنك الاحتياطى الفيدرالى قد اعلن ان gses يمكن ان يكون لها امكانيه الوصول الى شباك الخصم ، من شأنه ان يسمح لهم اقتراض الاموال مباشرة من الاحتياطي الاتحادي بدلا من الاسواق. فإني إذا وفريدي ومشاكل لم تحل وانها ما زالت تواجه صعوبات الاقتراض ، وهذا يعني انها سوف تواجه صعوبات الإقراض ، وهو أمر ان الولايات المتحدة لا يمكن للحكومة ان الخطر في هذه اللحظ

الدولار يغرق على فاني ماي وفريدي ماك الخو

2008-07-13T03:40:00.000-07:00

الدولار مقابل انخفاض حاد في العملات الرئيسية الاخرى الرهن العقاري المقرضين الجمعة بعد فاني ماي وفريدي ماك شهدت هبوط مخزونات عن مخاوف قد يضطرون الى ان أممت لنقص رأس المال. وزير الخزانة الاميركي هنري بولسون لم تقدم اي تلميح من الانزال ولكنه قال ان الحكومة ستعمل على مساعدة الشركات فى الانتعاش فى شكلها الحالى. "واليوم لدينا التركيز الاساسي هو دعم فاني ماي وفريدي ماك في شكلها الحالي كما ينفذون المهمة ،" قال بولسون. Pared مخزون بعض الخسائر بعد تقرير وكالة رويتر ان رئيس بنك الاحتياطى الفيدرالى بن بيرنانك وقال فريدي ماك الرئيس التنفيذي ريتشارد syron ان اثنين من المشاريع التي ترعاها الحكومة يمكن الوصول الى شباك الخصم.

فان الدولار / الين كما انخفض مخزون slumped تسجل اسعار النفط الخام والقلق المتزايد ازاء الحاله الصحية للسوق الرهن العقاري من دولارات الولايات المتحدة. نسبيا علاقة وثيقة بين الدولار / الين وسوق الاسهم الامريكية قد تضاءل. ومنذ اوائل حزيران / يونية الزوج قد نزل في ضيق التجارية تتراوح ما بين 106 و 108 على الرغم من الخسائر الثقيلة والانصاف. 106 - واذا كان مجال دعم مكسوره ، الزوج ومن المرجح ان تنخفض الى 103.

دورة نيويورك Recap

2008-07-10T19:13:00.000-07:00

باك وقد تم بيعها في نيويورك الدورة مهزوزه سوق الاسهم ومتجدد من الملوثات العضويه الثابتة في دفع أسعار النفط أقل من الورقه الخضراء. وشهدت مخزونات الولايات المتحدة من rollercoaster يوم واحد كما تخوف السوق المالية استحوذ مرة اخرى. وكان هذا تغذية تعليقات من السابق لويس القديس بول رئيس بنك الاحتياطى الفيدرالى من قال انه يعتقد الرئيسيتين من دولارات الولايات المتحدة تقريبا gses الرهن العقاري المتعثره وكذلك تعليقات من بيرنانك رئيس بنك الاحتياطى الفيدرالى وزير الخزانة بولسون من جميلة وقال ان الكثير من انزال اخر مؤسسة مالية كبيرة من غير المحتمل. وبالرغم من ذلك ، مندفعه في اتجاه واحد آخر من الوثيقة التجاري ساعد ستاندارد اند بورز 500 وثيقة حوالي 0،7 ٪ ، ولكن من دولارات الولايات المتحدة ومع ذلك كان rattled.

ارتفاع اسعار النفط لا يساعد ، مع اطلاق النار على النفط اكثر من دولار في نحو 3 دقائق من نيويورك كما جاء في الطابق التجاري على الانتهاء. آخر الاخبار من اطلاق الصواريخ الايرانيه والنيجيريه نهاية لوقف اطلاق النار ولكن رئيسي على عرض السلع الأساسية ، التي من شأنها اغلاق الدورة بالقرب من 141.50/bbl دولار

هموم الرهن العقاري على تعميق الخسائر ضغط الورقه الخضراء

2008-07-10T19:10:00.000-07:00

الدولار مقابل المتداوله في الغالب اقل العملات الرئيسية الاخرى بعد الخميس رئيس بنك الاحتياطى الفيدرالى بن بيرنانك س وزير الخزانة هنري بولسون وقال المشرعون ان سلطات تنظيمية جديدة وهناك حاجة لعزل الاقتصاد الاميركي من الأضرار في حالة وجود كبير المالية غير المصرفية المءسسه الانهيار. بولسون ايضا : قال إن لديه تأكيدات بأن فاني ماي وفريدي ماك استثمارها جيدا. تعليقة فانها لا تفعل الشيء الكثير للتخفيف من الاسواق المالية القلق بشان اثنين من اكبر المقرضين الرهن العقاري. السابق وليام بول رئيس بنك الاحتياطى الفيدرالى وفى وقت سابق ، قال انها من الناحية الفنية والمعسر قد تحتاج الى حكومة انقاذ. الولايات المتحدة سوق العمالة المؤشرات الأولية كانت مختلطه كما مطالبات العاطلين انخفض اكثر فى ما يقرب من ثلاث سنوات ولكن استمرار المطالبات وارتفعت الى مستوى مرتفع جديد. وانخفض الين كما ارتفعت اسعار الاسهم الامريكية بعد متواضعا آخر دورة متقلبه. كما انخفض الجنيه الاسترلينى اسعار المساكن فى المملكه المتحدة تعانى من اكبر انخفاض سنوى منذ عام 1993. وارتفع الدولار الاسترالى عقب strongerthan - الاسترالي يتوقع نمو العمالة. الدولار الكندي المكتسبه الذهب وارتفعت اسعار النفط الخام

Pending Home Sales Resumes Its Deep Descent

2008-07-08T10:20:00.002-07:00

Faint signs that the US housing recession may have been founding a bottom over the past few months were downed out by yet another drop in pending home sales - one of the broadest gauges of sales activity in the sector. According to the National Association of Realtors' report, signed contracts for purchasing previously owned homes dropped 4.7 percent through May. This was the sharpest drop in nine months for this statistical series; but the level of the decline isn't much of a surprise considering the previous reading recorded the biggest jump in sales since October of 2001. From the same period a year ago, activity has fell 14.6 percent. Looking into the details of the indicator, all four regions reporeted falling sales levels. The South offered the biggest contraction at 7.1 percent, followed by the 6.0 percent decline in the Midwest, the 2.9 percent dip in the Northeast and 1.3 percent fall in the West.

For the broader housing market, this indicator confirms concerns that conditions continue to deteriorate. Though the pending home sales report lags in its release time, it records signed contracts which is more inclusive than the existing sales report which only tallies when the purchase is closed. This leading aspect over the existing and new home sales figures confirms fears that rising mortgage rates, stricter lending standards and falling consumer confidence and wealth are stunting a rebound in the worst housing recession in over a quarter century. With consumers seeing their purchasing power erode and prices falling steadily, the eventual improvement in the ailing sector will be pushed further back

USD Grabs Attention As it Gains

2008-07-08T10:20:00.001-07:00

The U.S released its pending home sales for the month of May coming in at -4.7% worse than both the expected reading of -3.0% and the prior reading of 6.3%. While the wholesale inventories came in at 0.8% slightly better than the expected 0.7% but still lower than the previous 1.3%. Still the release of this news hardly moved the markets as Mr. Ben Bernanke spoke today saying he may extend direct loans to Wall Street this year in order to help the financial markets crisis, boosted the greenback in the market.

The single currency deteriorated in the market as Bernanke's comments gave support to the dollar while taking the attention away from the euro. The EU Zone today lacked fundamental as the rise of the dollar, was the reason behind the slip of the euro. The EUR/USD is trading around the support of 1.5677 at 1.5673. The pair recorded a high of 1.5738 and a low of 1.5659.

The pound still remains weak on the back of the gaining greenback as the UK economy is also fundamental free. The rate decision this Thursday will help the sterling take a trend as the expectations show that the BoE will keep rates steady at 5% in fear of high inflation and sluggish growth. The GBP/USD is currently trading at 1.9704 while recording a high of 1.9795 and a low of 1.9690.

Currently in the market we see carry trades where investors buy high yielding currencies and sell low yielding currencies in which we call carry trades. The yen a victim to carry trades is currently seen losing ground in the market as the USD/JPY is currently trading between the support of 106.25 and the resistance of 107.45 at 107.30 while recording a high of 107.42 and a low of 106.24.

Foreign Exchange Market Daily Update

2008-07-08T10:19:00.001-07:00

The US dollar gained broad strength against a basket of major currencies after Federal Reserve Chairman Ben Bernanke said that the US central bank will continue to keep an emergency lending facility to banks open beyond year end. The comments helped reassure markets should another large investment bank show risk of failure. The dollar continues to be helped by dropping oil prices to below $136 today, down from a recent record high of $146.

G8 leaders met on Tuesday in Japan, continuing their second day of talks in the group's three-day annual summit with the rate of appreciation of the Chinese yuan continuing to be a major concern for most market leaders especially the Euro-Zone.

The euro trimmed losses in early session trading to the dollar after a steep drop in pending U.S. home sales in May to -4.7%. The euro also dropped moderately after Bernanke's comments on emergency relief to financial markets gave support to the dollar. Euro-zone authorities commented on Tuesday on the “frightening” strength of the euro, which could weaken exports in the near future.

Sterling weakened to the dollar amid poor findings from a survey on UK companies released by the British Chamber of Commerce. The BCC reported that 5,000 businesses surveyed are currently facing their worst liquidity situations since 1992.

U.S. Market Update

2008-07-08T10:18:00.000-07:00

Equity trade remains volatile this morning with the major indices feeling the cross currents of a second straight day of plunging commodity prices. Oil futures are headed for two-week lows, falling to $136/bbl, while natural gas has fallen below its uptrend line to $12.48. Grain futures are getting hammered for a second straight session while September copper has slid some $0.30+ in the last five sessions to $3.70. The relief that many of the transportation and consumer oriented names are experiencing is being offset by declines in the commodity related stocks themselves. The OIH -3% is testing its 90-day EMA for the first time in more than two months, while XOM, CVX and AA weigh on the Dow.

Steel, agriculture, iron ore, coal, and copper stocks are all seeing money flow out. Oil guru T. Boone Pickens has been making the rounds promoting his new energy initiative, inveighing against US dependence on foreign oil and promising to fund a campaign to reduce this dependency. Pickens notably concentrated on the promise of wind power, which is not surprising given his recent major investments in this sector. Financials are taking very little comfort from Fed Chairman Bernanke's comments this morning. Bernanke stated that the Fed may keep an emergency lending facility for big Wall Street firms open past year-end while it seeks to restore financial market stability.

Another Failed USDJPY Recovery

2008-07-08T10:17:00.002-07:00

Failed rallies in USDJPY are becoming increasingly interrupted by sharp 100-point declines occurring in 2-hour intervals. This highlights the ease at which the reduction in risk appetite is disrupting financial markets. Bernanke's speech did lift the dollar from 106.80 to 107.20 after the Chairman said the central bank will extend the liquidity lifeline to banks. USDJPY faces resistance at 107.30, followed by the 200-day MA of 107.55. Subsequent run-up remains capped at the trend line resistance of 107.90. Support stands at 106.55.

Sterling Extends Declines After Bernanke

The impact positive dollar impact from Bernanke's speech is expected to be especially punishing for GBP as the deteriorating UK fundamentals remove resistance facing the offers. Much speculation will emerge on whether the Bank of England will cut rates this Thursday, which will dictate fresh volatility in the currency. We expect the decision to be a close call in favor of no rate cut at which point the reaction is likely to be of further GBP losses. Support stands at $1.9705, followed by 1.9660.

Are Fed Funds Futures Traders Wrong?

2008-07-08T10:17:00.001-07:00

Whether we're referring to bond vigilantes trading treasuries or fed funds futures, these traders were prominently correct a year ago when the bottoming in the 10-2 year yield spread helped signal increased pressure by the Fed to act. But could they be wrong this time? Indeed, they were wrong in their longer term expectations such as in spring 2007 in pricing expectations for rates to remain steady 6 months out. Although futures have scaled down odds of a rate cut, they continue pricing nearly 50% odds of 25-bp hike by the September 16 meeting and as much as 75% odds of similar tightening by year-end. Such pricing is in our opinion flawed considering the history that the Fed had never raised rates before a considerable decline in the unemployment rate. And unemployment is far from being the only obstacle to a rate hike. Recall that the Fed continues to pump extra liquidity in the system through its Primary Dealer Credit Facility just to keep some form of normalcy in the financial system.

San Francisco Fed president Janet Yellen said yesterday she is forecasting the unemployment rate to peak below 6.0% in the present cycle from the current 5.5%, while describing credit conditions as tighter than the in last August. Her optimism for lower inflation expectations ahead may dampen expectations of a rate hike this fall. Although her remarks aren't widely shared by the rest of the FOMC, the more likely course of preference by the Fed is that of holding rates steady into the rest of the year.

Daily Market Commentary - Fundamental Outlook

2008-07-08T10:04:00.000-07:00

The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.5640 level and was capped around the $1.5740 level. The common currency retreated after NYMEX crude oil futures of August delivery extended recent gains and tested the $135 handle on reduced concerns over supply constraints. The Group of Eight summit in Hokkaido was largely a non-event for the exchange rates market. President Bush reaffirmed the U.S.'s long-standing strong dollar policy and the G8 expressed "strong concern" about oil and food prices, noting they "pose a serious challenge to stable growth worldwide, have serious implications for the most vulnerable and increase global inflationary pressure.

" Federal Reserve Chairman Bernanke suggested the Fed may extend its credit facilities for primary dealers "beyond year-end." Data released in the U.S. today saw May pending home sales fall 4.7% m/m and 14% y/y, the latest indication of the sector's struggles. Also, May wholesale inventories were off 0.8%. In eurozone news, European Central Bank member Papademos reiterated the ECB will take steps to ensure price stability. Euro bids are cited around the $1.5645/ $1.5230 levels.

ECB: Rate Hike but Remarkably Cautious

2008-07-03T18:32:00.000-07:00

Overview:

The ECB raised rates on 3 July by 25 bp to 4.25%, which came as no surprise. As we expected, there was a much more balanced approach in both the introductory statement and the question and answer session than there was in June; the committee used milder language in order to ensure it did not feed expectations of more rate changes.

Details:

This time the ECB expressed much more concern about the growth picture by reintroducing references to downside risks to growth, omitting upside risks and by expressing its "expectation of rather weak real GDP growth in the second quarter of 2008, in part as a technical counter-reaction to the strong quarter- on-quarter increase of 0.8% in the first quarter". In addition, growth was to be "more moderate" instead of "slower". Also, in the question and answer session, Mr. Trichet even mentioned that growth rates were not flattering.

By dropping the phrase "heightened alertness" and reintroducing "monitor very closely all developments ..." in the introductory statement, the Bank clearly did not wish to encourage market expectations of further hike(s). Also, it mentioned that inflation is "likely to remain well above 2% for some time to come" which is a remarkably softer tone than in the June statement, in which inflation was said to "remain above 3%". Mr. Trichet mentioned that the "decision (to hike rates) was taken to prevent broadly based second-round effects and to counteract the increasing upside risks to price stability over the medium term". Although the hike does contribute to an even more pronounced weakening of the economy in our view, the move is largely a symbolic gesture aimed at getting inflation expectations down.

Euro Plunges on Trichet

2008-07-03T18:30:00.000-07:00

The dollar rallied sharply against the euro in New York trading, rebounding from 1.5908 to beneath the 1.57-level at 1.5683. Ahead of a long weekend holiday in the US, traders digested a barrage of economic events earlier in the session prompting a sharp reversal in the euro from its 2 ½-month highs, falling by over 2 big figures.

The closely watched US labor report was largely inline with expectations, with the June non-farm payrolls slightly above forecast at -62k, from -49k. Meanwhile, the unemployment rate in June was higher than expected at 5.5% and unchanged from the previous month. Despite further losses in non-farm payrolls, the dollar found some respite since markets were preparing for an even greater loss of jobs following yesterday's unexpectedly disappointing ADP private-sector payrolls report, which declined by 79k. The June non-manufacturing ISM report missed consensus estimates, dipping beneath the key 50-level which distinguishes between contraction and expansion, to 48.2 versus calls for a smaller decline to 51.0 from 51.7.

Euro Plunges

The euro posted steep losses following ECB President Trichet's press conference, falling by over two big figures to 1.5683. The European Central Bank, as expected, hiked rates by 25-basis points to 4.25%. However, the subsequent press conference by Bank President Trichet offered little hint as to whether any additional rate hikes can be anticipated. He said that, “The monetary policy stance following today's decision will contribute to achieving our objective”, while emphasizing that the Bank has no bias on future decisions. Trichet said that rate increase was necessary adding that the Eurozone is experiencing moderate but ongoing growth.

Service Sector Activity Slips in June

2008-07-03T18:27:00.000-07:00

The Institute for Supply Management's non-manufacturing index (NMI) fell below expectations, down 3.5 points to 48.2 in June. The subcomponents confirmed the headline weakness as business activity, new orders and employment all contracted last month. Despite the slowdown, service sector activity likely added to Q2 real GDP growth.

Labor Picture Remains Dim

The trend in service sector activity continues to slow.
The employment index contracted again last month - consistent with today's -62K nonfarm payroll reading. While some of the hardest hit sectors of the economy continue to displace workers, we have not seen the large monthly declines that are typically seen during a recession.

Prices Remain Problematic

The prices paid index jumped 7.5 points to a record 84.5 in June. At this level, prices paid are a major concern and will pressure profit margins for some time.
The NMI averaged 50.6 in Q2 versus 47.8 in Q1 suggesting the current economic slowdown is not intensifying. Q2 real GDP growth should come in around +2.0 percent.

Ahead of ISM Manufacturing as USD Resumes its Fall...

2008-07-01T04:25:00.001-07:00

The negative sentiment for the greenback continues as still investors lack confidence in the U.S economy as they feel that it not performing any better. Today the U.S is releasing fundamentals concerning the manufacturing sector as it is expected to show that the economy is still contracting since costs of raw materials and energy rally are eating through the pockets of businesses and consumers.

The Euro Zone today released its PMI manufacturing for the month of June final reading coming in at 49.2 slightly higher than the prior and projected reading of 49.1 respectively, since the reading is below the 50.0 level the economy is considered to be contracting. As for Germany they released their retail sales showing a great jump for both the annual reading and the monthly reading so this is helping support the EU slightly. There are expectations that the ECB will hike interest rates on Thursday by 25 points as Jean-Claude Trichet is taking a hawkish tone. Today the euro is struggling to break the major support of 1.5730 while trading under a resistance of 1.5775 at 1.5766. The EUR/USD pair recorded a high of 1.5777 and a low of 1.5722.

Despite the U.K economy releasing their PMI manufacturing showing a slip by 4.2 to 45.8 the royal currency is still gaining on the back of the weak greenback. The British pound hit a major support at 1.9896 as it started to form a strong bullish wave working its way upside to reach the psychological level of 2.0000. The GBP/USD is currently trading at 1.9980 while recording a high of 2.0002 and a low of 1.9887 so far.

The unwinding of carry trades still continue in the markets as investors are risk averse in which they sell high yielding currencies and buy low yielding currencies like the yen while stock markets remain to record losses. Using the Stochastic Oscillators on a daily basis we see that the yen in trading in an oversold area as the USD/JPY broke the support of 105.70 successfully and if the downtrend continues, it will hit the next support at the level of 105.00. The pair is currently trading at 105.44 while recording a high of 106.37 and a low of 105.32.

Economy Fears Hamper Sterling

2008-07-01T04:24:00.000-07:00

Sterling will gain some further support form a reduction in short positions, but he economic outlook will limit gains

The UK currency found support on dips during Monday with support close to 1.99 against the dollar and 0.7940 against the Euro with the currency still proving to be resilient.

The latest Nationwide house-price index recorded a further 0.9% decline in prices for June to give a 6.3% annual decline, although this was marginally stronger than expected. The data will maintain fears over the UK housing sector and economy as a whole which will curb short-term currency support.

The PMI index for the manufacturing sector weakened sharply to 45.8 in June from a revised 49.5 the previous month which was the weakest reading sine 2001 and will increase fears over the UK economic trends. The UK currency dipped weaker following the data after a strong start in Europe, but again proved to be resilient with a renewed push towards the 2.00 level against the dollar.

Currencies: EUR/USD Hit By Poor European Eco Data

2008-06-24T02:08:00.002-07:00

On Monday, the explanation for the price action in EUR/USD was straightforward. EUR/USD was hammered by the poor European data as the German IFO index declined more than expected while the European PMI fell below the 50 mark, suggesting that growth in Europe has come to a standstill. So, while the single currency still got the benefit of the doubt at the end of last week, it proved also vulnerable to poor economic news from the region yesterday. EUR/USD traded above/at the 1.56 area in Asia and early in European trading, but started to cede ground as soon as the first regional PMI data hit the screens and the sell-off accelerated after the publication of the European PMI and the IFO. The fact that there was no US eco news to counterbalance the poor European data this time was a support for the US currency. So, while it looked on Friday as if EUR/USD had still some kind of safe haven role to play, this feeling was overthrown yesterday and EUR/USD lost its Friday gains and closed the session at 1.5518 compared to 1.5606 on Friday.

Today, the European calendar is thin, but in the US the CS house prices, the Richmond Fed index from the manufacturing sector, the weekly retails sales and the consumer confidence for June are on the agenda. Interesting to see whether, these data, if weak, could again trigger some kind of counterbalance move on yesterday's EUR/USD decline.

Already for quite some time we have a neutral bias on EUR/USD. The economic data both in the US and Europe point to ongoing slow/declining growth but the Fed and the ECB have not many options to address this problem. In this context of low visibility on the US and the European economy, we assume EUR/USD to extend the sideways trading pattern between 1.6020 and 1.5285.

The data and the signals from central bankers still have the potential to cause intraday swings, but at least for now, the news from both sides obviously contains is no strong enough trigger for a directional move in EUR/USD in one way or another. The technical picture recently showed decent resistance in the 1.5650 area and in the 1.5810/40 area. In this context we still prefer to play the current sideways range by a sell-on-upticks approach. Tomorrow's Fed interest rate decision and communiqué will be the next important event to see whether the sideways approach in EUR/USD can be maintained.

Major Market Mover: Confidence On The Way...

2008-06-24T02:08:00.001-07:00

As the U.S. economy is preparing this week for the big fat FOMC decision on monetary policy, and as the meeting starts today, investors are eagerly waiting for what fundamentals from the economy might say before that release which might change the expectations for tomorrow's call.

Consumer confidence as reported by the conference board supposedly fell to 56 for the month of June, down from 57.2, marking the lowest since 1992 and ringing the bells of danger that the U.S. economy is still facing a lot of pressure, and the future of the personal spending despite those tax rebates might not be very bright.

Food and energy prices are still skyrocketing, cutting from consumers' pockets and kicking inflation levels up the sky, while growth is still dampened by less overall spending and with the consequences of the undergoing credit squeeze.

Fears from higher inflation and less growth might tie the Feds hands to move rates; stagflation might be an upcoming phase for the economy if it continues on the same pace, unless the fiscal stimulus which I consider a very smart preemptive strike from the fed was able to pick up growth levels.

Today's report might not be the end of the world for the economy, but it sure gives a very clear view on what people think about their economy, and do they actually believe that the worse is behind us or not, and the answers of those questions are not easy, and what consumers believe is very important in the economical equation.

Dear folks, let's wait and see what today's fundamental might say about the economy, and lets keep our breaths held for tomorrow's rate decision, where the final word for the fed will move markets in any possible way.

FOMC: Preview of Policy Meeting

2008-06-24T01:51:00.000-07:00

Overview:

On Wednesday night at 20:15 CET the Federal Open Market Committee (FOMC) will announce its policy rate decision. In line with the market we expect the FOMC to keep policy rates unchanged at 2.00%. Focus will be on how much the committee will toughen its language. We expect the FOMC to adopt a rela-tively neutral stance, possibly with a slight weighing towards inflation concerns. Markets are currently pric-ing more than 50% probability of one or several hikes by September. We doubt that the statement will be sufficiently tough to ratify such a pricing. Hence, going into the meeting we asses risks to bond yields - par-ticularly in the short end - to be skewed to the downside.
Activity:

Since the 30 April meeting risks of a deeper downturn have abated somewhat. Firstly, financial markets have stabilised, although significant strains remain. Secondly, activity data have not deteriorated as much as feared - partly owing to a quick impact from the tax rebates. That said the activity outlook remains sluggish, as headwinds from tighter credit, rising commodity prices and the housing downturn remain in the equation. The statement is likely to acknowledge improvement in financial market conditions and less down-side risks to growth. That said, the weaker labour market, tighter credit conditions, the housing correction and the rising commodity prices will be mentioned as downside risk factors.
Inflation:

While core inflation data have shown a slightly more favourable development over the past months, there are few signs of an easing in the underlying trend. Moreover, the lack of response in global commodity markets is adding concern that the US slowdown is not able to generate any persistent easing in headline in-flation through a slowdown in commodity prices. This is now adding upside risk to inflation expectations, which by some measures have recently shown signs of de-anchoring leading to increased concern among many FOMC members. While the overall outlook for inflation will probably be little changed, the FOMC is ex-pected to add further emphasis to its inflation concerns.

Foreign Exchange Market Daily Update

2008-06-19T12:23:00.000-07:00

The US dollar strengthened for the second day against a basket of currencies after a positive jobless claims report. Initial claims last week fell to 381,000 from 386,000 the week earlier but on average the indicator is rising.

The euro weakened against the dollar after comments from the chairman of euro finance ministers, Juncker. “High euro zone inflation is a worry for governments in the region as well as the European central bank and governments too must fight it”. Inflation is at a record high 3.7% year over year which is almost double the target of 2.0%.

Sterling rallied against the dollar after a surprise spike in retail sales. Year to date sales rose 8.1%, the strongest level since April 2002. Retail sales last month rose 3.5% versus expectations of a -0.1% fall. This is a glimmer of hope in the otherwise sagging UK economy. Investors are still pricing in a lower than 50% chance the central bank will raise rates in the short term.

The Japanese yen traded slightly weaker but off its weekly high after a survey showed business pessimism is spreading from the manufacturing sector to the country's service sector. Businesses cite the cause is due to a weakening domestic demand caused by rising raw material costs. The worsening outlook is likely to keep interest rates on hold at 0.50%.

The Canadian dollar rose to its highest point in 2 weeks after a higher than expected CPI reading dampened expectations the BoC would cut rates. CPI rose 2.2% from 1.7% a month earlier. Looking further into the report, gasoline prices were pushed up 15% from last month alone.

More Mixed US Data

2008-06-19T12:22:00.000-07:00

More weak data continues to stream out way from the US economy as while the feds are now directing their fears towards price stability that does not entirely rule out that economic performance is up and about.

Rising after reaching the brinks of recession is to be further prolonged especially as rising commodity prices is deterring further disposable income.

Spending that accounts for 2/3 of the economy is a matter to support growth as the monetary and fiscal policies were aimed at helping Americans to continue spending in to support growth while helping them withhold their living standards after thousands of Americans lost their homes and their wealth in the wake of the mortgage market collapse.

Today's weakly jobless figures reflected ongoing softening in the labor market that should prevail for a longer period and as Bernanke said more weakness is to emerge in the sector. Claims dropped the least in two weeks by 5,000 from the weak before to 381,000, which are still approaching the upper red line zone of 400 thousand claims which is very reflecting to weak economic conditions. Meanwhile continuing claims declined to 3060 thousands the lowest since April yet still much above last year's average.

Calmness Rule Markets Regardless Bad U.S. Data

2008-06-19T12:20:00.000-07:00

Calmness and thin trading still dominates markets in the U.S session, currencies are still wondering in very narrow ranging despite the release of some medium effect bad fundamentals from the U.S. economy.

The start was with the weekly jobless claims which declined to 381K from 384K last week, while the expectations were to see a decline to 375K, and that what made the difference.

The most waited releases today, the Philly Fed Manufacturing index sank way more than expected and even than the previous to -17.1, while expectations where to see a decline of 10 after a decline of 15.6 in May. Leading indicators a somehow lagged figure for the economy increased by 0.1%.

The news did not leave much of an effect on the currencies who chose to keep their supports and resistances intact for no major triggers are to break them, Euro maintained its very early high at 1.5585 and did not sink below 1.5465 as the lowest trading point for the day.

The British pound remains the biggest winner today, after reaching to a high of 1.9725, maintaining its early morning low at 1.9575, and settling around 1.9700.

The Japanese currency was the most stable amongst all, ranging between 108 and 107.70 after reaching a low of 107.40 in the morning time, the currencies does not look like it’s going to be able to break any of those levels till a trigger comes along and makes it.

Markets are still waiting Mr. Paulson speech today and see if it carries any thing new about the economy, as fundamentals for this week are done, especially in the U.S. markets

Yen Broadly Lower

2008-06-17T20:25:00.000-07:00

The Japanese yen and Swiss Franc remain the weaker major currencies as the week starts. While there was not specific mentioning of the currency markets in the post G8 meeting statement, the group of finance ministers raise concern that rising commodity prices is now becoming the biggest threat to the world's economy. The statement said that "elevated commodity prices, especially of oil and food, pose a serious challenge to stable growth worldwide, have serious implications for the most vulnerable, and may increase global inflationary pressure.

" The statement echoed recent comments from Fed and ECB officials on the threat of inflation and was supportive to market's speculation that both are on the road to rate hike. While Asian Stock markets do stage a strong rebound today, weakness in yen and swissy is believed to be more related to expectation of widening rate gap rather than improvements of risk appetite.

Talking about inflation, Eurozone HICP final will be released today and is expected to be at 0.6% mom, 3.6% yoy in May. ECB Tumpel-Gugerell said that inflation would remain above 3.0% in short term and the current high reading of 3.6% should be interpreted as a warning signal. Released in early US session, Swiss retail sales climbed 2.4% mom in Apr, above expectation of 2.0%.

In the US session, Empire state manufacturing index is expected to stay negative at -3 in Jun. NAHB housing market index is expected to be unchanged at 19 in Jun. TIC capital flow is expected to drop to 75b in Apr.

US Dollar Drags On Stagflation Fears

2008-06-17T20:24:00.000-07:00

The US dollar fell for the second round of trading this week as fresh economic data spurred stagflation concerns, and led the Canadian dollar to pick up the biggest gain against the greenback. The appreciation supported a minor rise in the high yielding Australian and New Zealand dollar as the pairs rose to 0.943 and 0.755, respectively. On the other side of spectrum, the low yielding Swiss franc strengthened to close above 1.04, and was followed by the Japanese yen as it close just under 108. Expectations of a rate hike next month supported the euro to close above 1.55, while the British pound was the only currency to decline against the greenback as the pair dipped to 1.955.

Rising commodity prices raised concerns that the US economy may fall into stagflation as housing starts fell to a 17 year low of 975K from 1008K in April amid a rise in producer prices. The jump in commodities has led the headline figure to rise for the eighth consecutive month to 7.2 percent from 6.5 percent, while the core measure continued to hold at 3.0 percent. The Labor Department also added to the slew of downbeat data as they highlighted a less than expected rise in industrial production to -0.2 percent from -0.7 percent, with productivity cooling to 79.4 percent from 79.6 percent.

A statement by Goldman Sachs spurred bearish sentiment in the stock markets as the giant investment firm forecast the banking sector to raise an addition $65B in new capital to offset the losses incurred by bad loans. As a result, the DJIA 108.78 points to 12,160.30 points, with 27 of the 30 components declining. The broader S&P500 dipped 9.21 points to hold off at 1,350.93 points amid 231 stocks falling to a fresh 52 week low.

The lack of improvement in the housing sector paired with mounting pressures in the financial sector increased the appeal of US Treasuries, and led many risk adverse investors to seek the safety of risk free bonds. As a result, the benchmark 10-Year yield fell to 4.209 percent from 4.269 percent, while the 2-Year yield plunged to 2.907 percent from 3.044 percent.

Looking forward, the MBA mortgage applications index is the only scheduled release for the US tomorrow, but market participants expect increased volatility for the US dollar on Thursday as Fed Vice Chairman Donald Kohn is scheduled to testify at a Senate hearing. The leading indicators index is also due out for release on Thursday, with economists forecasting the index to stall to 0.0 percent from 0.1 percent in April.

USD Falls On New Signs Of Stagflation

2008-06-17T20:23:00.000-07:00

The dollar traded lower on further signs of stagflation Tuesday as US producer prices jumped more than expected and industrial production unexpectedly fell. The greenback is also pressured by reduced interest rate expectation on reports the Federal Reserve will not hike interest rates anytime soon. We believe the Fed has lowered rates too much. The Fed needs to lend freely to troubled banking institutions to ease the credit crunch and prevent systemic risk in the financial market, but it needs to do so at a significantly higher rate to avoid creating more inflation. The sooner the Fed hikes rates, the better for the US economy and the dollar.

The weakness in the real economy should be addressed by fiscal policy, preferable tax-cuts; the negative real Fed funds rate only makes the economic situation worse. Sterling was even weaker than the dollar as UK inflation rose but the Bank of England seemed unlikely to address the problem.

The USD/JPY fell slightly as US stocks declined on renewed financial-sector worries and more signs of economic weakness. The pair has been testing the 108-area resistance the last few days and the test is still not over. If this resistance is penetrated, the pair will rise to 110. There is support in the 106-area.

Yen Traders Look To BoJ Minutes For Forecasts On Growth, Inflation

2008-06-17T20:21:00.000-07:00

On the back of strong economic data, the yen managed to recover some lost ground against its US counterpart, with the USDJPY pair trading back below 108.00 today. Tertiary Industry Index and Machine Tool Order figures both pointed to expansion; though the outlook for fading growth going forward seems to be little changed considering the path of consumer spending and trade activity.

Looking ahead, Store sales and Coincident Index figures provide low-level economic event risk for fundamental traders to work with. In addition, the BoJ minutes may give a reading on the policy group's outlook for inflation and growth in the months ahead.

Pound Unexpectedly Drops On BoE Forecasts Of 4 Percent Inflation

2008-06-17T20:20:00.000-07:00

Under normal circumstances, high inflation readings and expectations are a guaranteed currency booster. This was the thinking going into today's UK CPI numbers. The consumer basket reported a 0.6 percent rise in headline inflation through the month of May that boosted the annualized figure to a decade high 3.3 percent clip. Though, considering the core annualized number ticked higher to a 1.5 percent pace, it was clear that most of the pressure was found in volatile components like food and energy.

Nonetheless, with headline inflation at a decade high and above the 3.0 percent tolerance limit; BoE Governor Mervyn King, for the second time since the central bank was made independent in 1997, had to write a letter to the Chancellor of the Exchequer detailing why inflation was so high and what would be done to curb it.

Forecasts for price growth to top 4.0 percent in the second half and remaining above target into 2009 suggested action was necessitated. However, this was immediately cut short by comments that 'the path of the bank rate that will be necessary to meet the 2 percent target is uncertain” and 'the committee will maintain price stability by ensuring that the rise in inflation is temporary.” Without action on the BoE's part, inflation at these levels is merely a burden on growth - and therefore the pound - going forward.

Dollar Finds Little Help From Heavy Concentration of Data

2008-06-17T20:17:00.000-07:00

Tuesday's US economic docket offered the dollar its most concentrated event risk for the week; yet the otherwise volatile data would deliver few surprises for a market that is already veraciously discounting future Fed rate decisions. The morning opened with a range of data that would cover both growth and inflation trends. With futures traders considering a quarter point rate hike in September a near certainty, there an obvious interesting in the produce price index for May.

Upstream inflation pressures accelerated more quickly than expected to a 7.2 percent annualized pace that fell just short of the multi-decade high set just a few months back. Even when the 4.9 percent jump in energy costs and 0.8 percent increase in food prices were excluded, the core figure would notably match its own 16-year high. However, considering the market's focus on the cost at the pump in the grocery line and the fact that the front-line CPI numbers were released last Friday, this data added little to the mix. For growth, the session's data was not encouraging for the greenback.

The housing market - the US economy's anchor - reported an ongoing drop in construction. Housing starts slipped 3.3 percent to a 17-year low and permits for future projects fell 1.3 percent as demand sufferers from evaporating home values, ballooning inventories, rising mortgage rates and plunging consumer confidence. The business community was similarly under pressure with industrial production contracting 0.2 percent and capacity utilization edging down to a new three-and-a-half year low.

To top it off, trade activity was lending little help to expansion despite the dollar's recent record lows. The current account deficit for the first quarter ballooned more than expected to a $172.5 billion shortfall owing largely to rising fuel costs burdening the physical balance and reduced foreign investment curbing net income.

US: weak payrolls figures, but in line with expectations

2008-06-09T01:45:00.000-07:00

In May, non-farm payrolls fell by 49K, close to the estimated job loss of 60K. The average weekly hours worked stayed unchanged as well as the manufacturing hours, but the aggregate hours worked dropped by 0.1% M/M following a 0.4% M/M decline in April. Hourly earnings on the other hand increased with 0.3% M/M, up from 0.1% M/M previously, but given the surge in inflation, the rise in labour income is insufficient to stimulate spending.

Looking through the various sectors, the construction and manufacturing payrolls showed smaller losses than in previous months, but Professional services, which rose unexpectedly in April, registered again sharp losses, including at Help Agencies, the leader of overall payrolls. The diffusion payrolls slipped further below 50, indicating indeed broad-based losses. These figures were in line with the expectations, but nevertheless should be considered weak. Payrolls declined for 5 months in a row.

More surprising was the unemployment rate, which jumped from 5.0% to 5.5% against the expected 5.1%, the highest level since October 2004. However, these results are partially influenced by an extraordinary increase in the number of young people entering the labour force at the end of the school year and to the 5 week interval between the previous payrolls survey week, which might have impacted the seasonal adjustment. So, the risk is for the unemployment rate to fall (slightly) in the next months. Overall, the payrolls should be considered as disappointing, but not disastrous.

Vulnerable Dollar

2008-06-09T01:42:00.000-07:00

Shocking US data came out to retrieve back fears in the US economy, unemployment jumping up to 5.5% as this is considered to be the biggest gain in 1986, the existence of those worse than expected news pointed out that the growth of the feds land will remain soft if it really did not dip more and more in a recession.

Due to the negative data released on Friday most currencies gained against the US dollar, especially the Euro because it just needed some momentum to make it skyrocket once again to all time high levels. Yet due to this surge the pair is falling in an overbought area making badly need a slight correction in order to continue its bullish movement, but still eyes are all headed toward the US data for this week, whereas market participants are just waiting for more confirmations to see to what level of recession the US had fell into.

Secondly the Royal currency was boosted indeed, retrieving some of the losses that they faced in the past week, where the trading range for the next couple of hours might be falling between 1.9752 and 1.9614; the technical indicators really points out some chances to see the pair climbing against the US dollar, but still slight correction might be taking place.

The USD/JPY pair fell from the 106 levels affected by the negative data which where released on Friday, as now it's trading at 105.24 levels; and technically the pair might be continuing the heading to the down or at least trading in the 105 levels and the trading range for today falls between 106.21 and 104.60.

Major Market Movers: Second Stop... Durables

2008-05-28T00:41:00.001-07:00

The data flow from the U.S. economy is printing the picture for the 2nd quarter, 'supposedly' the last before the economy picks up pace in the latter half of the year, yet no strong indicative signs are seen! The clue for the day is durables let's see if March's trend prevailed.

Expectations are that durable goods orders in April slipped 1.5% deepening the fall of 0.3% in March which is highly anticipated as the surge in energy prices especially gasoline are highly correlated to transportations and auto sales which are the volatile components in this category, so for that the justification is already anticipated.

Yet, for the orders excluding transportations the volatile component that we have just mentioned, sales are projected to have dropped 0.5% after the recorded unexpected rise of 1.5% in March. Now durables are a very indicative sign to the economic sentiment and performance and I am not indicating here their weight in the growth component.

The theory that correlates confidence and spending is the most applicable on durable goods sales, for they are the long lived assets and are usually pricy and it takes confidence from buyers to be able to commit to just products and feel comfortable that their FINANCES ALLOW IT!

Confidence as the Conference Board showed yesterday has slipped yet to a new 16 year low, energy prices remains highly elevated in April especially gasoline, and Americans struggled to keep up with their living standards as is so the fall in durable goods today will be a very important clue that still consumers are not lured into new shopping sprees and creates more doubt regarding the effects to be for the fiscal stimulus.

Today's Key Points

2008-05-28T00:40:00.001-07:00

The US stock market recovers on sharply lower crude oil prices but sentiment on Asian stock markets is slightly negative. Bond yields are largely unchanged.
Focus today will be on the release of German May consumer prices and durable goods orders in the US later this afternoon.
In line with consensus we expect Norges Bank to keep its leading interest rate unchanged at 5.5% and maintain a hawkish tone.

Markets Overnight

The US stock market yesterday evening recovered on the back of a sharp drop in crude oil prices and broad weakness within commodity prices. S&P 500 and Nasdaq yesterday closed up 0.7% and 1.5% respectively. However, the Asian stock markets have been slightly negative this morning with Nikkei and Hang Seng down - 1.3% and -0.3% with weakness mainly in energy and mining stocks.

Bond yields are largely unchanged since market close in Europe yesterday with 2Y and 10Y US bond yields trading largely unchanged at 2.49% and 3.91% respectively.

The crude oil / USD correlation was temporarily re-established yesterday with USD strengthening on the back of lower crude oil prices. EUR/USD this morning is trading at 1.5696. JPY has weakened slightly and USD/JPY and EUR/JPY are trading at 104.02 and 163.26 respectively. Despite some softness in commodity prices there has been no major impact on commodity currencies. EUR/NOK is trading largely unchanged at 7.8682. No major movement in SEK either. EUR/SEK is trading at 9.3033 this morning.

As mentioned above crude oil prices yesterday tumbled from USD 133 to just about USD 128. Crude oil prices have recovered slightly overnight and the July NYMEX crude oil future this morning is trading just below USD 128.

Emerging Markets

2008-05-28T00:39:00.000-07:00

In Poland we look forward to the rate decision. We expect unchanged key rate at 5.75 %. We still like PLN very much long term, because Poland is very ambitious about joining the euro as soon as possible (likely in 2012). However short term we could see some profittaking and the central bank could make some dovish comments, which would lead to some pressure on PLN. We consider selling PLN, but stay neutral.

Yesterday South African Q1 GDP-data was published. GDP growth slowed to 4.0 % y/y from 4.6 % i Q4 2007. The figure was slightly below consensus (4.1 %). Despite the weak GDP data, we believe that the central bank will hike by further 50 basis points on 12 June, because inflation is still very high. Today inflation for April is published and the market expect another double digit number (10 % y/y), which will support our view about a hike in June. Despite a high carry (1 year interest rates is about 12 %) we do not like ZAR right now.

Growth is declining, inflation is still very high and on the top of that we have seen difficulties in the energy sector. And the latest news about attacks on emigrants from other African countries (56 dead) is of course first of all a human tragedy, and if it is not stopped it will stop investments in ZAR long term. We consider selling ZAR, but stay neutral. Looking at EM in general: After positive returns in April returns have been about zero in May. Looking forward much is depending on the global sentiment. The financial crisis is not in focus any more. Instead focus has turned towards economic data from the US.

The latest economic data from the USA has been better than expected. There is a lot of important USdata in the next couple of weeks (the highlight is obviously the job report on Friday 6th of June). The data could support the markets and start a new period with positive sentiment on EM.

FX & Money Markets Daily: Today We Speak Norwegian…

2008-05-28T00:37:00.000-07:00

Majors & Scandies

Well perhaps not… However, our focus will definitely be on Norway today as the central bank is announcing the future deposit rates and as the Governor of the central bank, Svein Gjedrem, speaks about monetary policy rates. Broadly consistent with market expectations, our house view calls for unchanged rates in Norway at today's announcement. The next monetary policy report is due June 25 and Norges Bank may be reluctant to change policy until the report is released. Inflation is on the rise, inflation expectations are high, and the labour market is tight - all conditions that speaks on behalf of a hike at today's announcement.

However, the housing market has weakened, the growth in Norway and globally has decreased, and the high money market rates are doing a bit of the job for Norges Bank in keeping inflation at an acceptable level. Overall, this leads our economists to expect an unchanged rate today. However, the central bank could very well be a bit hawkish in their press release due to the inflation issues. We do, however, prefer not to have any position over today's rate announcement.

CPIs from the German 'Bundesländer' (federal states) are due during the day and the harmonized index is also due 'at some point'. Yesterday US New Home Sales was a bit better than expected (526k vs. 520k), but last months figure was revised downward (526k vs. 509k). In addition, US Consumer Confidence fell in May. Overall, money market rates increased slightly in both the Eurozone, the US, and in the UK.

Currencies: EUR/USD Test 1.56 Rejected

2008-05-20T02:41:00.001-07:00

On Monday, EUR/USD trading again showed an erratic trading pattern as a clear trading theme is lacking. In the morning there was some follow-through dollar selling, extending the move at the end of last week that followed poor US consumer confidence. EUR/USD temporary broke above the range top in the 1.56 area, but the gains could not be sustained and the EUR/USD fell already back in the range at the start of the European session. What can't go up, must come down and later in the session the slightly better than expected US leading indicators (usually no market mover) were a good excuse to test the downside and EUR/USD even briefly dropped below the 1.55 mark to close the day at 1.5510 (compared to 1.5578 on Friday).

Today, the calendar contains the US PPI and the ZEW survey on economic sentiment in Germany. Usually these data are not the most important ones for currency trading, but the situation might be different today. Markets will take a close look at this week's European data (ZEW today, IFO tomorrow and PMI's on Friday) to make up their mind on the resilience of the European economy. In theory, the US PPI should be less important for markets as the CPI for the month of April is already available. However, recently less important data were quite often a trigger to hunt intra- day stop-loss levels and with no clear theme for trading available, this pattern might be repeated.

Two weeks ago, EUR/USD tested the downside of the established trading range, but this attack was rejected after the ECB press conference and EUR/USD since trades again above the previous range bottom (1.5340). So, at least for now the consolidation hypothesis can be maintained. Since then US and European eco data and events failed the give the currency markets a clear trading theme. We expect this more or less erratic trading to continue short-term. The euro has lost some of its shine recently, but US data apparently are not strong enough for the dollar to stage a more powerful rebound. We hold on to our view that there is no dominant market theme to guide trading in this pair and we expect more sideways, probably even erratic trading. In a day to day perspective, the focus now shifts to the European business confidence surveys. We tend to put the risk to the downside for the European economic data. If this comes true (and after yesterday's rejected test of the 1.56 area) such an outcome might push EUR/USD lower in the established sideways range. So, in a daily perspective we hold on to a sell-on-up-ticks approach.

The Sunrise Headlines

2008-05-20T02:40:00.003-07:00

US equities ended narrowly mixed on Monday, as earlier gains evaporated later in the session after Sandisk said record energy prices hurt sales, pushing tech stocks down.
Asian equities fall overnight after a six day winning streak.
Reserve Bank of Australia considered raising rates earlier this month, according to Minutes, sending the Australian dollar to 24 year high (versus US dollar).
BOJ keeps rates unchanged, as uncertainties about global growth and energy thrive
US Senate agrees on housing bill and looks now for compromise with House bill.
Crude (127.26 $) remains well supported and close to highs on supply fears and OPEC's reluctance to raise output at its next meeting.
IMF still sees serious risks to global financial stability
German ZEW indicator and US PPI highlights for trading today

Sunrise Market Commentary

2008-05-20T02:40:00.001-07:00

US Treasuries eke out modest gains in lacklustre session
Equities and technicals were the drivers in yesterday’s thinly traded session that left Treasuries with some, albeit technically insignificant, gains. Today, the calendar remains fairly light which might result in more range trading.
European bonds lower ahead of sentiments data
The recent sell-off on the European bond market has brought bond prices close to important support levels, which if sustained broken may result in another down-leg. In 2-year yields, the 4% level should remain difficult to break above.
EUR/USD test of 1.56 range top rejected
The dollar started the week on a poor footing, but managed to recoup the losses later in the session in technically inspired trading. Today (and later this week) the European data should set the tone for trading. Poor data might cause the euro cross rates to drift lower in the established ranges.

Danske Daily - Markets Overnight

2008-05-20T02:39:00.001-07:00

After a strong opening the US stock market lost steam in late trading and closed mixed with S&P 500 slightly up 0.1% and Nasdaq down 0.5%. Strength was mainly within energy companies on the back of new highs for crude oil prices while weakness was mainly within technology and financials. Because of the negative close on the US stock market most Asian stock markets are in negative territory this morning with Nikkei and Hang Seng down 0.8% and 1.9% respectively.

With the turnaround on stock markets, bond yields are lower since the close of European markets yesterday. 2Y and 10Y US bond yields are down 6bp and 4bp to 2.37% and 3.82% respectively.

In the FX market the main move has been some strengthening of funding currencies JPY and CHF on the back of weaker stock markets. USD/JPY and EUR/JPY this morning are trading at 104.18 and 161.59 respectively. EUR/USD is trading largely unchanged since the European close yesterday at 1.5512. No major moves in Scandinavian currencies overnight. This morning EUR/NOK is trading at 7.8066 and EUR/SEK is trading at 9.2853.

Crude oil prices continue to set new record highs as both Saudi Arabia and OPEC indicate that they currently see no need to increase crude oil production further. This morning the NYMEX June crude oil future is trading slightly higher at USD 127.3.

This morning Bank of Japan as expected left its leading interest rate unchanged at 0.5% in a unanimous decision. There has been no market reaction on the decision. We are waiting for board governor Shirakawa's press briefing later today.

Major Market Movers: Producer Fire!

2008-05-20T02:33:00.000-07:00

As we stroll delicately into the US fundamentals this week, we are to stumble upon prices that producers are burdening with the depreciating dollar and the surge seen in commodity prices, as all combined have offset the perception for the Feds to withhold their easing policy…

Producer Prices Index probably rose 0.4% from March after a 1.1% surge recorded while on the year expected at 6.6% also easing from the level seen the previous month at 6.9%, nevertheless on the core level excluding those volatile factors it's expected to remain unchanged from the previous months at 0.2% while rising on the year to 2.9% after 2.7%.

Profit margins for producers are slimming more and more as they aim to achieve the utmost balance among the diversity of downside pressures facing their businesses. Whether it was from sluggish demand, or from tight credit markets, or from the ghosts of slowing global growth, all combined are pressuring producers to expand their horizons and already are we witnessing the shaping of a new agricultural commodity driven boom!!!

Basically the dollar remains fragile and battered, though many want to believe that the worst have passed for the US economy and that the dollar is now among its longing days. Just seemingly too early to break into the Chicken Dance! The dollar lost grounds as jitters once more are surrounding the credit market conditions, after MR. Trichet commented that worst of the credit freeze is not over yet which was also in harmony with what the IMF said that the US housing slump that yet is to find a bottom may cripple further growth and deteriorate conditions and extend the financial turmoil.

The extent of damage upon economies is yet to be exactly seen though we are seeing the frontlines reserved for the UK so far which was once thought to be Japan the first to go, though still the new governor of the BoJ is holding upon Fukui's legacy as he continued to hold rates steady as they announced today withstanding the hawkish stance as the decade long of deflation is finally changed imposed by the pipeline pressures across the globe.

The scenario is as follows, as long as woes are back to surround the US economies capabilities of rising soon from their dooms and that the housing market and the credit crisis is to continue, then basic methodologies are to be locked in once more, which are if inflation on the producer side which is less of an impact like the seen CPI which was surprisingly SUBDUED then markets will actually resume to the conception that the Feds actually have room to take rates down below the current 2.0% to stimulate growth as they said they will act as needed to promote economic growth as long as inflation is not a threat to them, which with spare capacity and jittery businesses that are scared to scrap off sluggish demand from customers then now its early to worry about price stability…

Dollar fell after Friday data on lower chances for a rate hike

2008-05-19T03:30:00.000-07:00

The Dollar fell on Friday as US consumer confidence raised concerns about an economic contraction in the second quarter and trimmed the chances the Federal Reserve will raise interest rates this year.

The unexpectedly sharp drop in a consumer sentiment index to a 28-year low in May eclipsed a report showing a rebound in building permits and construction starts for new US homes, which briefly triggered some Dollar buying.

EurUsd raced to a Friday 1.5601 peak. It was last trading at 1.5577, up 0.76%. UsdJpy tumbled to a session 103.53 low and was last quoted at 104.05 down 0.65%. UsdChf was 0.84% lower at 1.0476. GbpUsd rose 0.51% at 1.9576.

Speculation that April's non-farm payrolls report would be revised to show deeper job losses than the initially reported 20k contraction probably added to the Dollar's slide, but analysts were skeptical. Data on Friday showed combined figures from the country's various states indicated job losses of 151,000 in April.

The dollar has rallied in recent weeks on views that the Fed's cycle of interest rate cuts was nearing an end. A pause by the US central bank after slashing its fed funds rates target by 325bp to 2% since mid-September would support the Dollar, which has lost its yield appeal to the Euro. Euro-zone interest rates have remained at 4% since June, but analysts recall slower economic growth could force the ECB to move towards an easing path later this year. US interest rate futures were pricing an 88% chance that the central bank would leave its benchmark rate steady in June.

The University of Michigan Survey said its preliminary index of confidence fell more sharply than economists had expected in May to its lowest since June 1980. Housing starts in April ran at a 1032k, up from a revised 954k unit rate in March, while permits gained 4.9% to 978k a year from a revised 932k in March

Dollar On A Downturn On Worsening Housing Data

2008-05-19T03:29:00.000-07:00

The greenback traded near the lowest levels in more than two weeks against the euro on speculation an industry report on Friday will signal the worst housing slump in a quarter century thus weighing on the U.S. economy. The currency was also close to a one-week low versus the pound before a report May 23 that economists say will show existing home sales fell for a second month. 'Negative data on the housing market is likely to pull the dollar lower,' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. 'Sentiment will remain weak as there are ample reasons to believe the U.S. economy will slow.'

The dollar is currently trading at $1.5578 per euro at 7:35 am, GMT from $1.5577 late in New York on May the 16th, when it fell to $1.5601, the lowest since May 1. Against the pound, the dollar is currently trading at $1.9558 from $1.9571 at the end of last week when it reached a one-week low of $1.9598. The U.S. currency will currently buy 104.14 yen from 104.04. The euro is at 162.24 yen from 162.27. The dollar may fall to $1.5650 per euro and 103 yen this week, Soma said.

Asking prices for property in England and Wales hit a record high in May and house price inflation accelerated as a survey from property website Rightmove showed, despite expectations for a much weaker housing market this year. Economists are predicting falls in house prices of about 10 percent this year and Bank of England policymaker David Blanchflower has warned prices could dive by about one-third unless aggressive, immediate action is taken. At the same time, interest rates are unlikely to come down fast given worries over inflation after a decade in which house prices nearly trebled. As growth slows and inflation rises, the pound has suffered from expectations of economic misery ahead, falling to three-month lows versus the dollar last week and hovering near record lows against the euro.

Industrial Output Stalls Out in April

2008-05-15T18:38:00.000-07:00

Industrial production fell a weaker-than-expected 0.7 percent in April. Manufacturing was pressured lower by lower motor vehicle assemblies. Utilities registered a small gain while mining output fell. With expectations of reduced consumer & business capital spending, industrial production should continue to trend lower in coming months.

Manufacturing Output Continues to Fall

* Manufacturing output fell 0.8 percent. Half of this decline was attributable to the 8.2 percent drop in motor vehicle and parts. Anticipated slower vehicle production is likely to pressure manufacturing output lower in the coming months.
* Consumer durable goods output continues to show significant weakness, down 9.5 percent year-over year.

USD Shrugs off Soft Data

2008-05-15T18:13:00.000-07:00

The dollar was initially softer against the euro and yen in the Thursday session following soft US economic reports earlier in the morning. Weekly jobless claims increased to 371k, versus 365k in the previous week. The NY Fed manufacturing survey deteriorated to a reading of minus 3.23 in May, versus 0.63 in April. Meanwhile, industrial output in April declined by more than expected, posting a 0.7% decline versus a 0.3% increase while capacity utilization fell to 79.7% from 80.5% a month earlier. The May Philadelphia Fed business index improved to -15.6, better than estimates for an improvement to -19.0 from -24.9 from April.

The economic calendar for Friday consists of April building permits, housing starts, and the May University of Michigan sentiment survey.

Euro Initially Higher on Growth Data

The euro climbed above the 1.55-level overnight, rising to 1.5546 against the greenback. The catalyst for the move higher was better than expected economic reports from the Eurozone. Germany¡¯s economy expanded at its strongest pace in 12-years, with Q1 GDP sharply exceeding consensus estimates at 1.5%, up from 0.3% in the previous quarter while expanding at 1.8% versus 1.6% a year earlier. Inflationary pressures in Germany also eased. The final reading for April CPI declined by 0.2% versus a 0.5% increase in March and down to 2.6% from 3.1% in the previous year. The April HICP declined by 0.3% from 0.5% a month earlier and lower to 2.6% versus 3.3% a year earlier.

Data also revealed the Eurozone economy expanded by 0.7% in Q1, beating calls for a slight increase to 0.5% from 0.4% in the prior quarter, while the annualized growth rate held steady at 2.2%, defying calls for a decline to 1.9%. The reports reinforce sentiment that the ECB will likely keep interest rates unchanged for the remainder of the year while maintaining its tightening bias.

EURUSD relinquished its earlier gains by the New York afternoon, pulling off to 1.5420. Support begins at 1.54, followed by 1.5360 and 1.5330. Additional floors will emerge at 1.53, backed by 1.5270 and 1.5240. On the upside, resistance starts at 1.5450, followed by 1.55 and 1.5540. Subsequent ceilings are seen at 1.5570 and 1.56.

Dollar DOWN!

2008-05-06T19:22:00.001-07:00

The US session is fundamental free as market participants are locking on their expectations to the scenario the US economy and the European counterparts are to address this week, especially that they take the stand on rates.

Fannie Mea announced plans to raise new capital, and as well regulators required capital is to be lowered from 20% to 15% after losses on the back of the ailing housing sector. Seemingly the news were not as upbeat as they are to the dollar as the economy still has to prove that they are to make it thought the recession fears.

The euro continued to gain against the dollar recording as high as 1.5570s inclining above the strong level at 1.5558 yet the euro has to at least consolidate above that level, the low was left intact at early levels of 1.5452.

The pound also shed its early losses on the back of a weak dollar despite the poor performance the services sector posted which dragged the pound to as low as 1.9635 where is managed to find good demand to as high as the currently seen levels at 19770s and the pound must continue trading above 1.9750s at least to confirm the bullish headings.

Gains against the dollar are strongly seen for the yen as it dragged the pair thought a bearish wave to as low as 104.10s which needs to be breached to offset the ranges the pair was trading within especially after the 105.70s was strong for the pair to breach higher. The yen is also gaining against the euro and the pound as the pairs recorded the lows at 161.98 and 205.53 respectively.

USD/JPY At Important Resistance

2008-05-06T18:45:00.000-07:00

The dollar fell against major currencies as crude oil prices rose above $122 a barrel Tuesday. Stronger-thanexpected eurozone producer price inflation supported the euro, making any easing by the European Central Bank more distant. The dollar block currencies advanced on rising commodity prices. The low-yielding yen and Swiss franc rose on increased risk aversion but pared most of their gains as US stocks reversed early losses.

The USD/JPY fell the most in more than three weeks after Fannie Mae reported a larger-than-expected $2.19 billion loss. However, the pair pared losses after US stocks gained in late trading. The pair is overbought, close to crucial resistance, and strongly correlated with the US equity market. The stock market looks likely to continue its rally, making the USD/JPY likely to penetrate the resistance from its long-term downtrend. There are major resistances in the 105.50 and 107.50 areas

Greenback at Important Resistance

2008-05-03T04:54:00.000-07:00

The dollar rose against most major currencies on Friday after April US non-farm payrolls fell less than expected and the unemployment rate unexpectedly declined. Sterling fell following new signs of weakness in the UK housing market. The yen declined as risk appetite increased demand for carry trades. Today's US equity gains supported the dollar but pressured the yen. The dollar block currencies gained modestly on strength in the commodity market.

The Australian dollar was supported by higher-than-expected Australian retail sales. After two weeks of gains, the dollar is now at important resistance against most key currencies. It is possible the dollar's rally will continue; however, the market may need to consolidate gains. The Reserve Bank of Australia is expected to keep its cash target rate unchanged at 7.25% next week.

The EUR/USD made a new 5-week low on better-than-expected US data and weak European data; however, unable to penetrate the important 1.54-area support. The RSI indicator shows the pair is getting oversold likely requiring more time before breaking support. A break of the 1.54 support would be an important development, possibly setting a test of the support from the uptrend at 1.49.

USA: ISM Goes Sideways

2008-05-01T15:40:00.000-07:00

The ISM manufacturing index was unchanged in April at 48.6. Although contracting moderately, the recent months of data suggest that the manufacturing sector continues to hold up quite well compared to other parts of the economy. Again the survey sent a message of continued significant price pressures in the production pipeline.

While the composite was unchanged, some reshuffling took place among the sub indexes. Generally a much weaker 'employment' index (45.4 vs. 49.2) was counterbalanced by a higher 'inventory' index (48.1 vs 44.9), a marginally higher 'production' index (49.1 vs. 48.7), and a marginally higher 'supplier delivery ' index (54.0 vs. 53.6). The 'new orders' index remained unchanged at 46.5 - the lowest level since 2001.

Overall, the forward-looking parts of the report had something for both the optimists and the pessimists. On the pessimist's side, the differential between 'new orders' and 'inventories' deteriorated (-1.6 vs 1.6) as the inventory index rose. This differential is now consistent with a production index a little above 45. On the optimist 's side, the customers' inventory situation showed a favourable development, as the 'customers' inventory ' index declined to 45.0 (previously: 51). Hence, when applying the differential between 'new orders' and 'customers' inventories' (1.5 vs -4.5), a more optimistic signal consistent with a production index at around 50 arises.

Elsewhere the orders backlog index jumped back into expansive territory (51.5 vs. 47.5) and the exports index remains robust (57.5 vs. 56.5) - both of which are positive developments.

Further, the survey continues to signal increasing headline and core price pressures, with both the 'price' index (84.5 vs. 83.5) and the 'supplier delivery' index (54.0 vs. 53.6) drifting higher. Usually the supplier delivery index is a reliable indication of core price pressures, but it is not very common for the index to drift higher in a period with contraction in the manufacturing sector. We are mostly inclined to attribute this o the significant pressures on global raw materials markets from robust growth elsewhere on the globe and not as a sign of domestic strength.

Why the Federal Reserve Needs to Pause

2008-04-29T21:07:00.000-07:00

No one wants to be in the shoes of the Federal Reserve today as they begin their 2 day monetary policy meeting. Fed officials face a tough decision when they weigh the risk of deteriorating growth with that of rising inflation. Unfortunately for the Fed, the problems with growth and inflation have only escalated in recent weeks. The US economy shed jobs for 3 months in a row and job losses are expected to continue this month. The US economy is in a recession and it may be just a matter of time before the US central bank admits it. As indicated by the tables in our FOMC Preview, the housing market and the labor market have deteriorated since the last Federal Reserve meeting.

The only dollar positive news has been the increased inflation pressures and mild improvement in manufacturing sector activity. However despite the rise in service and manufacturing ISM - they both remain in contractionary territory. At this point the Federal Reserve's options are limited since they cannot raise interest rates to combat inflation. One of their only options is to let the dollar rise. The strength of the Euro has helped the Eurozone fend off inflationary pressures while the weakness of the US dollar has only exacerbated them. To cut interest rates by 25bp and then signal that they will pause in June would be a simple gesture by the Fed that could bring significant benefits.

Traders would assume that the Fed's rate cuts are over, at least for the time being and as result, they may send the Euro back towards 1.50 and USD/JPY back above 105. A stronger dollar will reduce some benefits for US exporters, but it could help curb inflationary pressures. Postponing any additional easing after their anticipated quarter point rate cut on Wednesday does not mean that the Fed has put an end to their easing cycle. They are just giving the market an opportunity to absorb the 325bp of rate cuts that they have will have doled out since August and any temporary boost from tax rebates. If the economy does not respond, then they could easily pick up where they left off.

Right now, they need to buy themselves some time by forestalling further inflationary pressures. The outlook for the US economy remains weak with house prices falling by the largest amount since 2001 and consumer confidence posting its biggest 3 month slide since the last recession. What is most worrisome about the April consumer confidence report is the fact that the jobs are plentiful question saw the worst response since September 2004 while the hard to get jobs question received the highest response since 2004.

Euro Drops as Consumer Spending Contracts

2008-04-29T21:05:00.000-07:00

The EUR/USD has continued to sell-off as incoming economic data reveals further weakness in the Eurozone economy. Not only did Deutsche Bank, Germany's largest bank, report its first loss in 5 years, but the Bloomberg Eurozone Retail PMI index hit a record low. Sales fell across all 3 of the largest euro member states with consumer spending in Italy reporting the biggest dip. Sales in Germany and France are both in contractionary levels.

Despite higher food prices, sales of food and drinks fell by the fastest rate in more than 2 years. This suggests that retail sales across the region will see a similar decline. Fundamentals, technicals and sentiment all support further losses in the Euro. The one thing that could have triggered a meaningful turn in the single currency was reasons for the European Central Bank to cut interest rates.

If economic data deteriorates even further, the central bank may have to seriously consider this possibility. The futures market currently does not expect an interest rate cut until the end of this year at the earliest. Anything to suggest otherwise could cause more volatility in the Euro. German unemployment is due tomorrow and we expect the employment numbers to be Euro negative.

What Is Next For The US Dollar?

2008-04-23T18:56:00.000-07:00

Euro Could Fall on German Business Confidence

The Euro has failed to extend its gains beyond 1.60 and we believe that another day of losses may be in store for the single currency. More signs of weakness in the Eurozone economy are beginning to reveal themselves. Even though service sector PMI improved in the month of April, manufacturing sector PMI deteriorated. This suggests that German business confidence could have also decreased this month as indicated by the ZEW survey. A little watched report called the Belgium Business Sentiment Index also tends to have a strong correlation with German IFO (chart). The index fell to a 2.5 year low in the month of April with the drop being the steepest on record. A large decline in German business confidence would be exactly what the Euro needs for a more meaningful turn. Meanwhile ECB member Noyer backtracked the comments that he made yesterday, which drove the EUR/USD to a record high. He said that the market misinterpreted his words and that the ECB is not looking to hike interest rates. For the time being, don't expect them to lower rates either.

British Pound Slips ahead of Retail Sales Report

Over the next 2 trading days, the big action should be in the British pound. We are expecting retail sales tomorrow followed by the first quarter GDP report on Friday. The deterioration in the UK housing market and the UK economy in general will weigh on consumer spending, while the GDP numbers may be partially dependent upon how bad retail sales fared in March. Unfortunately the minutes from the latest monetary policy meeting failed to provide any clarity on how the central bank may vote at the next meeting because the committee was split 3 ways. Six of the nine members voted in favor of the 25bp rate cut, 2 members voted for no cut at all while 1 member voted for a 50bp cut. As a group, they were concerned about everything from growth to credit markets to inflation. Looking ahead, the only things that will shed more light on where the BoE stands would be tomorrow's retail sales report.

Aussie At 24-Year High

2008-04-23T18:52:00.000-07:00

The dollar was mostly higher on Wednesday after Luxembourg's Finance Minister Jean-Claude Juncker signaled the weak dollar may harm global economic growth. The yen and Swiss franc fell on increased risk appetite as US equity prices rose. Sterling traded lower although the Bank of England minutes showed two BOE MPC members preferred no interest-rate cuts. The Canadian dollar fell as Canadian retail sales unexpectedly fell in February, increasing speculation of further Bank of Canada aggressive rate cuts following yesterday's 50 basis-point cut to 3.0%.

The AUD/USD penetrated the triple-top resistance and touched the highest level since 1984 as Australia's consumer inflation rose to 4.2% y/y in Q1 2008 for the first time in seven years. The pair is supported by high Australian growth and interest rates. High commodity prices have also supported the pair but limited the aussie's gain as the CRB-index sold off sharply today. There are signs of topping commodity prices and slowing Australian growth. Therefore, we sell one unit of the AUD/USD with stop at 0.9635 although it may be risky.

Awaiting Fed's Decision

2008-04-21T10:50:00.000-07:00

While the Federal Reserve is preparing another rate cut at the end of April, the European Central Bank (ECB) has enough room to postpone any intervention further into the future. In effect, ECB officials still promote a strong Euro, as a medicine against a rampant inflation. Nonetheless, the technical picture might delineate a different short/medium term scenario for Euro/Usd, if key technical levels are not overcome.

Inflation is aggressive, but the Federal Reserve should cut rates again

In March, the Producer Price Index (PPI) increased 1.1% (+0.6% expected) and the core index moved up 0.2% (+0.4% expected). The long bull trend in all commodity prices, that began in the year 2000, is here to stay. In fact, energy prices rose 2.9% month over month and are now up 20.4 year over year. Foods moved instead +1.2% and increased 5.8% on a yearly basis. Annually, PPI is at 6.9%, only a fraction below January's 7.4%. The Consumer Price Index (CPI) rose instead 0.3% month over month supported by energy products. March's increase was expected, but the core rate shows +2.4% from February +2.3%.

Despite inflation moving higher, the Federal Reserve should again cut rates at the end of this month by 25/50 basis points and probably in the coming months as well, so to bring fed funds rate below 2.00%. Nevertheless, some pauses might be possible to see how the fiscal stimulus package will impact consumer spending. Almost US$ 120 billion will return into taxpayer pocket this summer. Most of the money will be used to repay debt or into saving accounts, but between 15%/25% should support consumes.

In effect, last week Beige Book confirmed that the economic slowdown is increasing over many of Fed districts (9 of 12). How? First, housing remains very weak, even though some improvements in residential mortgage lending by banks has taken place. Second, consumer spending is falling across the country, as credit is fading away. The bright spots of the U.S. economy are tourism, agriculture and the energy sector.

No Fundamentals!

2008-04-21T10:47:00.000-07:00

The US dollar is deteriorating as the Bank of America Corp. the second-largest US bank said earnings fell by 77% which is the third straight quarterly decline as the company is keeping in hand $6.01 billion worth of write downs which worsened the market sentiment. Today, there were no major fundamental data being released by any of the economies as only technical movements moved the markets.

As for the euro was under going a correction wave Friday, today we see the euro back to its normal levels around 1.59 trying to build base above this level hoping the EU economy to support it with strong fundamentals so it can breach the1.60 which will be the new physiological barrier for the single currency. The EUR/USD is traded now around 1.5920 while recording a high of 1.5947 and a low of 1.5794 so far.

In the US session we are noticing that the British pound is starting to gain grounds as the BoE announced measures to exchange government bonds for mortgage securities worth 50 billion pounds just to stimulate the lending between British banks, the period for this plan is just one year, but it might be renewed to the upcoming three years. As this news came out, the royal currency fell as result of unclear situation. As the sterling lost momentum it could not breach the level support of 1.9825 as it started gaining again. The GBP/USD is trading around 1.9857 while recording a high of 2.0027 and a low of 1.9810.

The yen is gradually gaining against the greenback dragging USD/JPY pair to the 103.30s after recording a high of 104.06 and a low of 102.98 as the Japanese outlook remains mixed.

RBNZ April 24 OCR Preview: Firmly on hold at 8.25%

2008-04-19T04:55:00.000-07:00

Emissions Trading Scheme

No significant new information has come to light as regards the inflationary impact of this. However, we think the RBNZ is underestimating the effects. They themselves highlight this possibility as an upside inflation risk.

Fiscal

The RBNZ noted "additional fiscal stimulus" as a risk, and also that it could occur earlier than assumed: "fiscal stimulus occurring once inflation pressures have clearly eased is likely to be of less concern". The RBNZ is unlikely to be delighted by reports that tax cuts could well be rushed through under urgency as early as October this year. We also agree that given the healthy fiscal position and a sharply slower economy the stimulus could be considerably bigger than the RBNZ is currently assuming.

NZD

The RBNZ noted that "even if other things pan out largely as assumed, an additional risk is that the New Zealand dollar depreciates faster than we have assumed." So far, this has not been the case, but it certainly remains a pertinent risk.

Conclusion

All up, the Reserve Bank remains firmly in "wait and see" mode - as they have reconfirmed in speeches and presentations since the March MPS. The market is not expecting a change in the OCR at next week's meeting, and we concur. The main interest in the OCR review is therefore the tone of the document. We expect the balance will be tilted towards recognising that downside risks to near term growth both in NZ and abroad have intensified, while acknowledging that the inflation picture is still a problem. In the June MPS we would expect rate cuts to be brought forward from their current projection of end-2009, but to nowhere near market pricing, which suggest cuts as soon as October this year.

GBP/USD Daily Outlook

2008-04-19T04:51:00.000-07:00

Daily Pivots: (S1) 1.9758; (P) 1.9841; (R1) 1.9992

Cable's rise from 1.9599 continues today and extends further to as high as 1.9979 so far. As discussed before, break of the falling trend line and 1.9894 resistance confirms that whole decline from 2.0391 has completed in form of a falling wedge at 1.9593. At this point, intraday bias remains on the upside as long as 1.9882 minor support holds. Further rally should be seen to 2.0391 and probably to test 2.0464 medium term fibo resistance. On the downside, below 1.9882 minor support will turn intraday outlook neutral first. But pull back should be contained well above 1.9689 support and bring rally resumption.

In the bigger picture, down trend from 2.1161 have made a low at 1.9337. Recent price actions suggest that rebound from 1.9337 is still in progress and is set to have another rise to 2.0391 and above. However, with 61.8% retracement of 2.1161 to 1.9337 at 2.0464 remains intact, whole down trend from 2.1161 is probably still in force and is in favor to extend further.

Though, on the upside, firm break of 2.0464 fibo resistance will dampen this view and could then bring retest of 2.1161 high. Meanwhile, on the downside, below 1.9599 is now needed to turn short term bias back to the downside for retest of 1.9337 low.

U.S. M1 Money Supply Falls as M2 Gains

2008-04-17T19:53:00.000-07:00

(CEP News) - M1 Money Supply fell $24.8 billion in the week ending April 7, while M2 increased $9.8 billion, according to figures released from the Federal Reserve Thursday.

The Fed's Treasury holdings fell $12.2 billion to $548.6 billion in the week.

Borrowing by securities firms fell $7.8 billion from the previous week, averaging $24.8 billion in the week.

Market Awaits Ammunition

2008-04-15T03:11:00.000-07:00

European Mid Morning Update

Releases from Europe:

	Forecast	Actual
March
French CPI (MoM)	+0.6%	+0.8%
French CPI (YoY)	+3.0%	+3.2%

French CPI at 3.2% YoY and oil climbing today to reach $112.48 indicates the inflationary pain will continue. With Italian inflation numbers today along with Germany's and the Euro-zone's later this week the ECB will watch with alarm. Already ECB officials have been stating that there is no room to lower interest rates this year - but with the credit markets in a rather delicate state they will be gritting their teeth and biting into pillows each night…

The following economic releases are due today:

February

U.K. DCLG House Prices (YoY) +7.4%

March

Italian CPI (MoM) +0.5%
Italian CPI (YoY) +3.3%
U.K. CPI (MoM) +0.6%
U.K. CPI (YoY) +2.6%
U.K. RPI (MoM) +0.5%
U.K. RPI (YoY) +3.9%
U.S. PPI (MoM) +0.7%
U.S. PPI (YoY) +6.1%
U.S. PPI ex food & energy (MoM) +0.2%
U.S. PPI ex food & energy (YoY) +2.7%

April

German ZEW Survey: Econ Sentiment - 30.0
German ZEW Survey: Current Situation +32.8
Euro-zone ZEW Survey: Econ Sentiment - 33.0
U.S. Empire Manufacturing - 18.0
U.S. NAHB Housing Market Index +20.0

It has been a strange old Asian session with what looks to be an impasse over what to do next with the Dollar. Some commentators are now so desperate for ideas they are looking at U.S. corporate earnings for inspiration.

Wachovia and GE disappointed and today is Citibank and Merrill's turn to announce Q1 results. Citi has sold off leveraged debt to remove it from the balance sheet and Deutsche is expected to do the same.

And in spite of a heavier release schedule today it is difficult to point to just what will provide the catalyst for any move. If anything it has to be the German and Euro-zone ZEW surveys along with the Empire manufacturing and NAHB housing market index from the States.

The market is bearish Dollars but has repeatedly hit barriers to the downside and unless they can muster up the ammunition to push the Dollar further down the risk s actually more on the upside for now. This should still be seen in the context of a correction only. Indeed, if there are any further losses in the Dollar it only looks like the Euro that will take the strain while new lows seem less likely in other currency pairs.

Major Market Mover: Inflation Unchanged In The U.K!

2008-04-15T03:09:00.000-07:00

Inflation in March remained unchanged from February in U.K, as rising food and energy prices remain a threat for the BOE to achieve their desired target for inflation at 2.0%, presenting challenges as the central bank struggles to avoid the first recession since early 1990s!

Prices on the consumer level rose 0.4 percent in March after rising 0.7% the prior month and below median estimates of 0.6% rise, while compared with a year earlier inflation rose 2.5% unchanged from the prior estimate also below median estimates, while core CPI rose 1.2% inline with the previous reading.

Retail price index also fell in March yet reflecting dropping house prices and lower interest rates charged by banks on payments, RPI rose 0.3% on the month down from 0.8% back in February, while compared with a year earlier RPI rose 3.8% also down from the previous 4.1% and below the 3.9% forecasted by median estimates.

While a survey in Germany showed that future expectations were very low in April according to the ZEW Survey, the Economic sentiment fell to -40.7 from the previous -32.0, while the Current situation sentiment rose to 33.2 from 32.1, as for the Euro Zone the ZEW Survey signaled deteriorating expectations over the future of the 15-nation economy as the Economic sentiment also fell -44.8 from -35.0.

The BOE were very clear when they admitted they expect a 'sharp slowdown' in economic activity during this year after they decided to cut their rates by another quarter percentage point to 5.00 percent, while their inflation expectations remained elevated as the bank expects inflation to rise above 3.0 percent, which requires the BOE Chairman Mr. King to write a letter of explanation for the Government!

While the falling expectations over the future of the Euro area remains the notable thing even as the 15-nation economy remained resilient to a recession in the world's largest economy the United States, and a settling above the $1.50 mark Euro but luckily for the ECB their economic fundamentals are still 'sound', though highlighted by 'an unusual amount of uncertainty' over the extent of damage that occurred to the economy!

Later in the day the U.S Commerce Department will release the producer price index for March, as expectations are for a sharp rise in prices due to the never ending rise in energy and raw material's prices!

Struggling central banks around the globe should be the defining characteristic for this era as they are divided into two groups, one group remained focused on deteriorating growth levels led by the Feds and the BOE, and the other group are focused on inflation led b y the ECB and the BOJ!

FX & Money Markets Daily: Housing Market In Focus

2008-04-15T03:06:00.000-07:00

Majors & Scandies

The housing sector started the financial turmoil and for the time being, the focus in the FX and money markets remains among other things on the housing sector. RICS from the UK unveiled the worst figures since it started compiling data approximately 30 years ago. The pound is once again the 'victim' of the financial turmoil led by weakening housing markets and the consequence as we see it, is that the pound will be under pressure once again today.

RICS blames the fall on the tightened lending conditions, which could also be observed when BoE cut interest rates by 25bps last week. BoE's bank rate was lowered to 5%, however, the GBP Libor fixings did hardly move from before the announcement and mortgage lenders did not lower their mortgage rates either. From the US, the NAHB Housing Index is due in the evening and will give us an indication of the degree of the optimism (pessimism?) in the US housing sector. The neutral limit for the NAHB is around 50 whereas the figure was 20 last month. We are quite pessimistic about today's release and market surveys calls for a figure around 20 this month as well.

ZEW from the Eurozone and CPI from the UK will most likely draw a great deal of attention today as well. Especially, CPI from the UK will be interest to follow since the central bank cut interest rates last week even though inflation is still above target rate

Emerging Markets

Surprisingly EM currencies went off to a good start Monday. It was surprising on the back of a stronger JPY and 3 % lower equity markets in Asian. However during Monday the sentiment went negative and currencies like ISK, TRY and ZAR dropped more than 1 per cent against EUR.

Today we expect a neutral day. We have Polish CPI-data on EM today and PPI from the US. Both set of data are second tier data. However the market looks forward to an amount of more important events later this week. We look forward to interest rate meetings in Brazil (Wednesday), Turkey (Thursday) and Mexico (Friday). On the global scene we get important data from the US (CPI, Industrial production and Beige Book) and important company earnings (among others JP Morgan, Merrill Lynch and Citi).

How Many Times Will Trichet Use the Words Price Stability

2008-04-09T19:02:00.000-07:00

The Euro has come within 50 pips of its all time record high against the US dollar ahead of the ECB interest rate decision. The latest price action suggest that the the notoriously stubborn ECB President will continue to remain hawkish and express no concern about the level of the currency. Although retail sales have dipped, industrial production and the trade balance is on the rise. The improvement in the trade picture is particularly important because it confirms that the strength of the Euro continues to have only a limited impact on the Eurozone economy.

At the last monetary meeting, Trichet used the words “price stability” 8 times in his Introductory Statement. Although the ECB lowered their growth forecasts at the time, they also upgraded their inflation forecasts, sending a strong message to the markets that interest rates will remain unchanged for some tine. Looking ahead to this interest rate meeting, as long as the tone of the press conference remains the same and price stability is used no less than 8 times, there is a decent chance that the EUR/USD could hit a new all time high.

However should Trichet acknowledge the slowdown in growth, expect the EUR/USD to top out below 1.60 once again.

The Pressure on the US Dollar

2008-04-09T18:59:00.000-07:00

The currency market has been exceptionally quiet over the past few days with the EUR/USD and USD/JPY confined within a tight trading range. This range however was broken today as the EUR/USD came within 50 pips of its record high. Although there was no meaningful US economic data released, the move in the dollar represents the pressure that the market expects to fall upon the greenback over the next 24 hours.

The European Central Bank and the Bank of England have monetary policy announcements. The former is expected to keep rates unchanged while the latter is expected to lower them. However for the US dollar, the relative dovishness of the Federal Reserve may be the most important. The minutes from the last FOMC meeting reveals a divided Fed that is concerned about both growth and inflation. Although from here on forward, the Fed could slow down their degree of easing, the ECB's reluctance to cut interest rates and the BoE's own internal struggles (read the EUR and GBP sections for more details) could keep pressure on the US dollar.

Furthermore, the US trade balance could also turn out to be dollar negative. Even though the greenback has weakened significantly, which should help to narrow the trade deficit, manufacturing ISM also slipped that month which suggests that the contribution may have been limited. There are still a lot of inherent problems in the US economy.

We have previously warned of a further deterioration in the US labor market, but more immediately, US retail sales are expected to be released on Monday. With Linens ‘n Things joining Domain, Fortunoff, and Sharper Image in filing for bankruptcy protection, there is a decent chance that consumer spending could contract for another month. Crude oil and gasoline prices have also hit a record high which will take a toll on the pocketbooks of nearly all Americans. It may not be long before gas prices hit $4 a gallon across the nation.

The Sunrise Headlines

2008-04-08T01:05:00.001-07:00

* US equities close little changed, as early gains cannot be sustained. Good Washington Mutual news was offset by higher oil prices in a thinly traded session.
* Overnight, Asian equities, except Chinese ones, traded mostly lower
* Washington Mutual, the largest savings and loans, nears securing 5 billion $ in new capital, according to WSJ. Share rises 29%. Alcoa misses Q1 profit expectations, but markets count on higher aluminum prices going forward. AMD reports slower-than-expected Q1 revenues and slashes work force by 1680 jobs. Citigroup sells Diners club to Discover.
* Shirakawa, candidate for the BOJ governorship, might soon be confirmed by parliament.
* Oil (108.85) eases slightly overnight, after surging 3 $ on Monday following diesel supply concerns linked to a fire at European refinery
* IMF plans to sell more than 10% of its gold reserves, within the framework of the gold agreement and invest in other assets, bonds to start with. Gold little changed
* Australian business confidence drops to the lowest since September 2001, while New Zealand business confidence collapses to lowest level in 30 years.
* Minutes of the March 18 FOMC meeting highlight of the day.

Sunrise Market Commentary

2008-04-08T00:58:00.001-07:00

US Treasuries cannot sustain its post-payrolls gains

European bonds remain under pressure

FX : Dollar struggles to extend rebound

Calm Day in Europe

2008-04-07T05:11:00.000-07:00

The US recession is continuing to deepen as the Non Farm Payrolls came out Friday showing an unexpected decline of 80,000 jobs. Investors now fear that the US economy may take longer than expected to revive. As more heat is added on the US, the greenback depreciates against major currencies losing more grounds while traders flee the US dollar currency. Today the greenback reversed to try and gain some of its losses that were witnessed after fundamentals disappointed many traders. Technical movements today are dominating the markets.

The euro gained against the greenback as they released their fundamental data showing that Germany released its industrial production for the month of February coming in at 0.4% better than the expected reading of -0.4% yet less than the revised previous reading of 1.4% from 1.8%. Also the industrial production annual reading came in at 6.1% higher than the projected reading of 5.3% but also slightly lower than the revised prior reading to the downside to 6.5% from 6.9%. As this data gave support to the single currency it helped restore some losses that we witnessed at the start of this morning's session. The EUR/USD pair is currently trading at 1.5719 while recording a high of 1.5732 and a low of 1.5626.

As for sterling, it is depreciating against the greenback on anticipations that the BoE will slash their lending rates by 25 basis points later on this week in order to help restore the UK economy. Also the economy is continuing to suffer the exists turbulence in the financial markets. We see a minor resistance at 1.9920s and a minor support at 1.9840s as the GBP/USD pair is traded at 1.9870 after recording a high of 1.9932 and a low of 1.9834.

Carry trades are seen in the markets today, in which traders buy high yielding assets and sell low yielding assets. A victim to carry trades is the yen as it losses grounds against major currencies. Also in news, the BoJ on April 9 is expected to keep their interest rates steady which helped strengthen traders' confidence. As confidence was restored, Japanese stocks soared to show the largest gain in a month. The technical indicators show the major support is at 102s in which the pair since the mornign breached to trade above it now currently trading at 102.63 while recording a high of 102.84 and a low of 101.62.

Fear Continues To Ease

2008-04-07T05:06:00.000-07:00

The yen and Swiss franc are liable to weaken further in the short term, although residual caution will limit the scope for aggressive selling pressure

Risk tolerances have continued to improve at the beginning of this week. Measures of credit risk have eased with the European iTraxx crossover index, for example, falling by around 20 basis points to levels significantly below the 470 basis point level, maintaining the decline from peak levels above 550 basis points at the time of the Bear Stearns collapse

Asian equity markets advanced on Monday and European markets also secured modest gains even though there was evidence of profit taking from initial levels.

While fears remain at lower levels, there will be an unwinding of safe-haven demand and demand for defensive currencies will also tend to ease. In this environment, the Japanese yen and Swiss franc have weakened. Market fears are liable to remain lower in the very short term on hopes that credit-related panic has eased even though the mood of caution will continue.

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Bernanke Testimony Sinks The Dollar Before NFP Lull

2008-04-02T17:59:00.000-07:00

The tentative dollar rebound from Tuesday was stalled today by an ominous forecast for the economy from Fed Chairman Bernanke during his testimony before Congress. For the majors, the policy official’s remarks led EURUSD to hold a long-term rising trend and rally over 100 points to 1.57. The pound, despite disappointing data of its own, took advantage of the weakened greenback to confirm a triple bottom and rally back to 1.99.

Risk considerations proved to have an influence on the benchmark currency’s direction as well. The yen actually lost ground against the dollar through the early New York session to extend the notable break from yesterday, while the Swiss franc rose nearly 90 points to 1.0070. The high-yielding pairs had the benefit of the risk rebound and weak US currency, sending AUDUSD and NZDUSD back to 0.9150 and 0.79 respectively. Finally, the range bound Canadian dollar pair was able to extend a reversal to around 1.0150.

While technicals and sentiment seem to be firmly set against a significant dollar rebound, scheduled event risk would ultimately trigger the dollar’s downturn Wednesday. Topping fundamental concern for greenback traders was Fed Chairman Ben Bernanke’s prepared testimony before the Joint Economic committee in Washington. Within his remarks, the policy authority altered speculators’ outlook for the health of financial markets and the economy. Weighing in on the ongoing credit crunch, the central banker said the credit market was still under considerable pressure; and that if the Fed had not bailed out Bear Stearns it may have resulted in a “chaotic” reaction. While these were colorful remarks, traders were more concerned with the outlook for economy. While Bernanke was quick to ensure policy officials the second half of 2008 would see positive growth before expansion returned to trend in 2009, he had also offered predictions of negative growth through the first half of this year. Two consecutive quarters of economic contraction would satisfy the loose interpretation of a recession – which the US has not seen since 1990/1991.

After setting the record for the eighth largest rally on record, the stock market was due for a modest correction. The DJIA ended a back-and-forth session down a modest 48.53 points at 12,605.83. Following suit, the tech-heavy Nasdaq Composite slipped 0.19 percent to 1,367.53 and the broad S&P 500 edged 0.06 percent lower to 1,367.53. Though it isn’t clear through today’s price action, the Fed’s dour outlook for the economy may influence price action for some time, especially with NFPs due Friday and earnings session starting in earnest next week.

Despite the official warning of an impending economic recession, investors weren’t interested in parking their capital in the typically safe haven treasuries. The rate on the two-year note surged 31 basis points to 1.895 while the 10-year bond’s rate rose 19 basis points to 3.596.

For Thursday, the scheduled economic docket is relatively light – good conditions for the usual quiet-before-the-storm seen in the lead up to NFPs. Initial jobless claims will offer a last readjustment to payroll expectations and the ISM services gauge will offer fundamental weight to Bernanke’s outlook.

Source : dailyfx.com

Is the US Dollar Recovery Here to Stay?

2008-04-01T20:33:00.000-07:00

The US dollar made a solid recovery after manufacturing activity unexpectedly picked up, and strengthened against most of the major currencies as investors increased their risk appetite. Consequently, the US dollar picked up the biggest gains against the Swiss Franc and Yen as investors pulled out of the lower yielding currencies. Against the European currencies, the US dollar recouped previous losses against the euro and British pound as the pairs fell toward the 1.56 and 1.975 levels, respectively. The recovering dollar also soaked in gains against the Australian and New Zealand dollar as commodity prices declined. The Canadian dollar was the sole currency to rise against the US dollar - with market participants turning bullish as Canada's biggest trading partner begins to show signs of recovery.

On the economic front, fresh manufacturing data improved the economic outlook for the US as the ISM Manufacturing index unexpectedly rose to 48.6 from 48.3. Amid the mild increase, the index remains in a state of contraction but helped market sentiment to pick up as many speculated manufacturing activity to decline. However, the ISM Prices Paid index raised inflationary concerns as it rose to 83.5 from 75.5 - reflecting the highest level of inflation since Hurricane Katrina. The outlook for the housing sector remains unclear as Construction Spending fell for the fifth consecutive month, but declined at a slower pace of minus 0.3 percent from minus 1.7 percent.

The securities market continued yesterday's advance as liquidity fears eased with Lehman Brothers netting a total of $4B from stock sales while Blackstone raised a record $10.9B for its property fund. As a result, the DJIA picked up a whopping 391.47 points to bring the average to 12,654.36, with all of the big 30 advancing. The broader S&P500 rose 47.48 points to 1,370.18 points, with the amount of advancing issues more than tripling the amount of declining issues. However, repercussion effects from the credit crunch are showing signs overseas as financial giant UBS projected a first quarter loss of $11.9B, with Chairman Marcel Ospel announcing his resignation.

Investors left the safe haven of US Treasuries as improved data stoked an increase in risk appetite, and pushed bond prices lower. As a result, the benchmark 10-Year yield jumped to 3.56 percent from 3.41 percent, while the 2-Year yield surged to 1.80 percent from 1.59 percent.

Looking ahead, all eyes will be on Fed Chairman Bernanke tomorrow as he testifies before the joint economic committee at 13:30 GMT, and will be followed by the Factory Order index at 14:00 GMT. Prior to Bernanke's testimony, the ADP Employment Change is expected to add downward pressures for the US dollar as we expected the index to fall to minus 30K from minus 23K.

Danske Bank's ISM Monitor

2008-04-01T01:30:00.000-07:00

Comments on recent developments

Following a short rebound in January, ISM fell to 48.3 in February. According to the details, the decline was driven by important sub components such as production, new orders and employment.

This month, the signals from the local indices have been generally positive. Richmond and Chicago rose significantly, while Dallas and New York saw modestly higher readings. However, data from Philly Fed and Kansas have been soft.

Our monthly model forecasts a modest decline of one index point to 47.3 - fairly close to the consensus expectation of 47.5. According to the local indices, the risk may be slightly on the upside. On the other hand, demand for consumer and investment goods has softened considerably in recent months. Moreover, the tendency has recently been for the ISM to lead the local indices. In the next 3-6 months, the ISM is set to grind lower, reaching 45.0 in May/June - just above the recession threshold of 42.

Major Market Mover: The First Shot... ISM

2008-04-01T01:26:00.000-07:00

A busy day for the manufacturing sector world wide, Japan took the first shot announcing their Tankan survey for the first quarter showing a greater decline than Forecast, Europe and UK will release the Manufacturing PMI while the U.S. are releasing the Manufacturing ISM index.

The Institute of Supply management will announce today the manufacturing index for the month of March, with expectations to show a deeper contraction than any other in the last five years, it is expected to see a reading of 47.5 down from 48.3 in February, while we all know that a reading just below 50 is a sign of an economic contraction.

Well, with less spending less sales, less hiring how do you expect factories to produce, in times of recession factories tend to reduce their production levels, cut unnecessary jobs, maybe cut some product lines from its variety, with rising input prices that rhythm is expected to be faster in this recession, it is not only that people reduced the demand on the final goods, but the raw materials are actually corrupting production and reducing all profit margins from producers all over the world, and yes the problem is all around the world, the global slow down is not giving a chance to producers to even do and send, the markets are dead inside and outside...

Manufacturing was one of the first sectors to suffer the current crisis, it was the fist to sense the leak from the housing sector, then was followed by the services industry, and now we are interested the most with level of contribution it has on the jobs' market, as it is still our main concern for this week, and to tell you the truth, maybe it is the main concern in the economy overall, as everybody might still see or looking at least to see the hope there.

Dollar regained some of the strength after Mr. Paulson explained a new blueprint for the economy and the financial sector in general, but this is like a very long term plan, lets wait and see how much is it gonna be able to support the dollar and for how long...

Sterling Falls

2008-03-29T04:18:00.000-07:00

The dollar was little changed against the euro on Friday but about 2% lower for the week as today's US economic data showed the US economy is deteriorating and the Federal Reserve is in recession fighting mode, while European economic numbers were better than expected and the European Central Bank is in inflation fighting mode. Sterling declined versus most key currencies and fell to an all-time low against the euro as weak UK economic data increased the probability of further Bank of England interest-rate cuts. The Australian and Canadian dollars and Swiss franc were little changed while the yen rose against most major currencies on increased risk aversion as US stocks traded lower.

The GBP/USD dropped as UK consumer confidence fell to the lowest level in 15 years and UK house-price rise slowed to the lowest rate in 12 years. The risk of a UK recession is also increasing and the banking system is under stress. The chart shows a large head-and-shoulder formation, with long-term bearish GBP/USD implications. There are long-term support levels at the 1.97 and 1.93 areas, but the pair is likely to fall below that, possibly to 1.80-1.85.

Hawk ECB Vs Dove BOE

2008-03-26T20:38:00.000-07:00

The BOE expects economic growth to slow down sharply this year, while they expect inflation to remain elevated above their 2% target due to rising energy and prices along with wage pressures, yet they see inflation to drop later this year, the BOE also said that the ongoing turbulence in the financial markets remains a threat due to rising short term volatility, though the falling Pound in the last period helped economical growth in the U.K.

Mr. Trichet on the other hand remained Hawkish as he stressed the ECB are still focused on inflation which rose to a 14-year high at 3.3 percent on rising food and energy prices, the short term outlook for inflation remains highly elevated above the 2% target, while on the medium term the outlook remains for upside risks to price stability.

On the 15-nation economical growth, the ECB president indicated that the economy continues to grow on a moderate pace, yet uncertainty remains high concerning the outlook for growth, but Mr. Trichet stressed that anchoring inflation expectations is the ECB's "highest priority", over the medium to long term.

Scandi Daily

2008-03-25T02:32:00.003-07:00

There has been a significant rally in US callable mortgage bonds before Easter given speculations that the Federal Reserve would in the end buy mortgage bonds in order to restore investor confidence. Furthermore, the two GSEs, Fannie Mae and Freddie Mac together with the regulator OFHEO reached an agreement on 19 March that the GSEs would provide mortgages amounting to up to USD 200bn in order to help US homeowners.

The Financial Times reported last week that there have been discussions between the Federal Reserve, BoE and ECB whether to buy mortgage bonds in order to support the mortgage markets in the US, the UK and Euroland. However, both US and Euroland officials are against such a move.

These events have led to a significant rally in US mortgage bonds with OAS on the on-the-run callable mortgage bond tightening significantly last week. USD swap spreads have tightened, while the implied volatility of the long end of USD swaption market has not risen significantly. Furthermore, the stock price of both Freddie and Fannie rose some 55-60% last week.

So what are the implications for Danish callable mortgage bonds that have also been under some pressure the past two weeks with OAS widening 10-12bp last week in the 4% and 5% 30Y callables? In the long run it should be positive for Danish mortgages that the Federal Reserve is trying to solve the crisis in the US mortgage sector. Swap spreads in Euroland have also begun to tighten although the ECB is not about to cut rates, so short term we would expect to see a tightening of the OAS.

Global Daily

2008-03-25T02:32:00.001-07:00

With Europe coming back from Easter holiday today markets will be digesting the news over the holiday. Sentiment has improved markedly on the back of the better-than-expected earnings from investment banks and new Fed initiatives to revive the mortgage market. Bond yields in Euroland are likely to open 5-10bp higher today to catch up with the move in US yields as more money comes out of the shelter and find its way to riskier assets again.

The key question this week will be whether this improved sentiment can hold up. For now it seems to hold but overall we are still in a downward trend in most bond markets. The short end in the US now only prices 35bp in additional cuts, which we think is too little. Hence some value is starting to build here. On the macro front, the market has mostly focused on the good news such as a rebound in existing home sales, whereas weak jobless claims numbers (rose to from 356k to 378k last week) did not get any attention. Today we get more data in the US with the release of CaseShiller house prices (consensus -10.5%, last – 9.1%) and consumer confidence (consensus 73.5, last 75).

Looking ahead key data will be German ifo index (Wednesday), US durable goods orders and new home sales (Wednesday) and US core inflation/spending numbers (Friday).

Markets Overnight

2008-03-25T02:31:00.001-07:00

Stock markets in Europe are expected to open higher today on the back of strong stock market performance in the US yesterday and Asia overnight. In the US confidence in especially financial stocks was boosted by JP Morgan’s raised USD 10 a share bid for Bear Stearns and the unexpected increase in existing home sales by 2.9% m/m in February. S&P 500 and Nasdaq yesterday finished up 1.5% and 3.0% respectively. The positive sentiment continued in Asia with Nikkei up 2.3% and Hang Seng up 4.5% this morning.

With some confidence returning to financial markets bond yields in the US surged yesterday. 2Y and 10Y bond yields yesterday increased 19bp and 15bp and are trading at 1.79% and 3.50% respectively this morning. Credit spreads have tightened with the improved market sentiment.

Commodity prices stabilised yesterday after the sharp drop on Thursday. However, crude oil prices are slightly lower with the Nymex April future down 0.5% to USD 100.48 since yesterday.

On the FX market USD weakened overnight after rallying strongly on Thursday on the back of the sharp drop in commodity prices. USD this morning is trading 1.5540 against EUR and 100.17 against JPY. Because of the sharp drop in commodity prices on Thursday commodity currencies like AUD, CAD and NZD have weakened markedly since Thursday despite some of the loss being reversed overnight on signs of some stabilisation in commodity prices. Carry currencies have strengthened with some risk appetite returning to the market. In Scandinavia NOK overnight has reversed part of the loss suffered on Thursday on the back of lower crude oil prices. NOK this morning is trading 8.1058 against EUR.

Danske Daily

2008-03-25T02:29:00.000-07:00

Today's Key Points

European stock markets expected to open higher on the back of raised bid for Bear Stearns and stronger than expected US home sales.
European bond yields are expected to open 5-10bp higher to catch up with the surge in US bond yields yesterday.
Commodity prices stabilise after sharp drop on Thursday.

After Holiday Mix Up

2008-03-25T02:26:00.000-07:00

After a long weekend celebrating the Easter holiday, and the U.K. and Euro Zone actually are still celebrating... the U.S. came out with quite a surprising comeback! Is it time to put the worst behind us or is this just a glitch? According to some, it's still the beginning!

Although the housing sector seems to have picked up due to the decline in prices, the U.S. economic activity actually plunged to its lowest level in five years in February after a report by the Chicago Federal Reserve Bank indicated "an increasing likelihood that recession has begun."

The Index fell to -1.04 in February from -0.68 in January illustrating further deterioration. Since the one month figure can be inaccurate at times, the Feds see the three-month moving average as a more accurate indicator to the national economic growth. But in this case it won't really matter since the readings for both averages were the lowest since April 2003!!

It's not quite clear on how the economy is doing at the moment. Concerns about inflation had eased after the three-month average showed low inflationary pressures in the coming year but then again if we take what the Feds say into consideration then there's a clash somewhere and the missing link has yet to be found! Who are we supposed to listen to ladies and gentlemen? The Feds saying uncertainty about the inflation outlook has increased of the moderating inflationary pressures?

The black sheep in the herd has always been the housing sector after it had recorded poor sales and construction readings. The cancerous cell in the body of the economy was the one that actually eased all kinds of pressure and tension in the area as it surprisingly reported a rise in sales by 5.03 million in February on the back of record low prices compared to the previous rise of 4.89 million in January.

This rise marked the first in seven months showing an incline in sales by 2.9% after prices have been plunging the past year. Compared with a year ago sales have declined 23.8% but the boost seen last month which could be a sign of stability was due to the massive drop in prices.

Median prices fell to $195,900, dropping 8.2% from a year earlier. However, prices of single-family homes fell 8.7% marking the largest drop since the records began in 1968. This finally pushed inventories to diminish as inventories of unsold homes fell 3% to 4.03 million.

Region-wise, sales inclined in three of four regions. The West is still at the bottom as it fell 1.1%. However, the remainder was impressive especially in the Northeast where sales rose 11.3%, 2.5% in the Midwest and 2.1% in the South. Median sales price also were lagging in the West as they were down 13.4% due to the inactive jumbo loans market with loans above $417,000 are frozen.

Sales of single-family homes inclined 2.8% in February; the second consecutive increase, causing a fall of 5.5% in the inventories of unsold single-family homes. Sales of condos rose 3.7% in February after they have been slacking off with a rate of 29.7% the past year.

It's a good start this week for the U.S. after the upbeat data about the housing sector combined with JPMorgan quadrupling its offer to Bear Stearns helped push U.S. Stocks. After being at $2 a share, JPMorgan Chase agreed to buy Bear Stearns for $10 a share in an attempt to reduce risk in financial markets. At the start of the session, the S&P 500 Index increased 20.28 points or 1.5% to 1.349.79. The Dow Jones also rose 187.48 or 1.5% as well to 12.548.8 while the Nasdaq Composite Index gained 50.36 or 2.2 percent to 2,308.47.

I guess there's no time to rest dear reader, even after the long holiday! Minds now are still puzzled after the contradictory data being released from the U.S. economy yet traders' risk appetite increased as confidence is somewhat restored. It seems like a good week for the U.S. as the greenback gained instantly at the hour of the report but yet it was not strong enough to maintain those levels. The Term Auction Facility is just around the corner and the Feds are not getting a shut eye! They're exerting all the effort they have to salvage the economy and leap over the pit hole as they hang closely by the edge...

Carry Trades Rebound But Don't Count On a Broad Recovery

2008-03-24T01:35:00.000-07:00

With the stock market closed for Easter, carry trades have extended their rise. If another shoe does not drop next week, we could see a further rebound, but a rebound does not make a recovery. We continue to stress that the current market environment makes it very difficult for carry trades to recover. It is also the fiscal year end for Japan, which means that repatriation could keep the yen under pressure. Meanwhile there are a lot of Japanese economic data due for release next week and we expect most of them to be Yen positive.

Canadian, Australian and New Zealand Dollars Continue to Slide Amid Lower

The Canadian, Australian and New Zealand dollars recovered slightly from their steep decline yesterday. Next week's data releases imply continued volatility in the commodity currencies, as Canadian retail sales figures are projected to be higher in light of 33 year low unemployment figures and wholesale sales rising at the fastest pace in 13 months. In the backdrop of a suffering economy, consumers continue to be the pillar of confidence, as projections imply continued spending in the coming months. Down under the New Zealand trade balance forecasts remain positive, boosted by the surging prices in dairy export, but with the recent declines in commodity prices, it remains to be seen if the economy will still continue to show a trade surplus. Although New Zealand GDP forecasts imply growth in the economy, the country's finance minister fears the possibility of a short lived recession, as consumer confidence dips to a 19 month low.

Mid-Day Report: Dollar Extends Rebound

2008-03-24T01:32:00.000-07:00

Dollar extends the rebound against commodity currencies today and the strength is spreading further to against Swissy and Euro. Aussie and Loonie were both pressured throughout the day, following liquidation in commodity long positions. Gold is set to have it's biggest weekly drop in 25 years, dropping by 12% from it's record high of over $1000/oz. Oil, also fell below $100/bl. Meanwhile, the Euro and Swissy also retreats further against the greenback as traders take profits from the long positions, following weaker than expected services PMI reading in Mar.

Data from US saw initial jobless climbed 22k to 378k, matching Post-Katrina high. Philadelphia Fed survey improved more than expected from -24 to -17.4 in Mar. Leading indicators dropped -0.3% in Feb meeting consensus. Canadian Leading indicator dropped -0.3%, worse than expectation of 0.1%. Released earlier , Swiss combined PPI rose 0.2% mom, 3.6% yoy in Feb. Swiss trade surplus widened to 1.06b.

The biggest surprise today was UK retail sales which grew 1.0% in Feb, much better than expectation of -0.2% fall and even stronger than prior month's 0.8% growth. YoY rate just slowed slightly from 5.6% to 5.5% versus consensus of 3.7%. Sterling is relatively steady today, supported by rebound in EUR/GBP and EUR/CHF crosses.

What to Expect for the US Dollar

2008-03-22T02:03:00.000-07:00

* Eurozone Consumers Continue to Spend
* British Pound: April Rate Cut Will be a Close Call

What to Expect for the US Dollar

Markets around the globe were closed for Good Friday which led to zero volatility in currencies. After a week of wild swings, the quiet trading gives everyone an opportunity to think about what could impact the US dollar in the week ahead. Banks have not been shy about tapping into the Fed's new liquidity provisions and the recent move in the stock market suggests that the central bank's efforts have helped to temporarily ease the latest uncertainty in the financial markets. The demise of Bear Stearns could have led to a huge collapse in the stock market, but actions by the Fed have helped stocks end the week higher than its pre-Bear Stearns levels. The biggest problem in the financial markets right now is the fear of counterparty risk. By allowing investment banks to post a broader range of collateral for a longer period of time, the Federal Reserve has in effect, swapped their safe Treasury bonds for dodgier assets such as mortgage backed securities. Unfortunately this will only be a temporary solution to a serious problem which is why we haven't seen the end of dollar weakness. Two weeks from now, we have non-farm payrolls due for release and the vulnerability of the labor market will come back to the forefront. Goldman Sachs just joined Citigroup in announcing a new round of layoffs. However before those numbers are released, we do have a week of only Tier 2 US economic data, or data that should not be particularly market moving. The most important releases are existing and new home sales, durable goods, consumer confidence, the final Q4 GDP numbers, personal income and personal spending. Everyone expects the housing market to remain weak, but consumer confidence could surprise to the upside since the weekly ABC numbers have shown signs of stability. The GDP numbers are the final figures for the fourth quarter, which means that they should not be particularly market moving. Therefore even though the US dollar could resume its slide relatively soon, the lack of any Tier 1 economic data such as non-farm payrolls, inflation reports or retail sales does not ensure that this will happen in the coming week. In the meantime, keep an eye on the equity and bond markets. If they continue to stabilize, the dollar could extend its rebound, but if volatility grapples the market once again, the dollar could quickly resume its slide.

London Session Recap

2008-03-22T02:00:00.000-07:00

The final London Session of a very busy week (Easter) has brought a substantial decrease in trading activity. Market conditions are inferior to the backdrop to which we recently have become accustomed over the past two weeks. Both volume and volatility came sporadically, if at all, leaving market players with range bound, illiquid price movement. The only trading we heard of was the closing of positions heading into the holiday weekend.

Nearly all currencies are within striking distance of yesterday's New York closes. Both USDJPY and USDCHF are sitting unchanged at 99.50 and 1.0095 respectively. The Greenback has come under very light pressure in EURUSD and AUDUSD, which have added about 10 to 20 pips as of this writing. EURGBP has been able to rebound slightly, bouncing off the 0.7760 level following yesterday's London drubbing. Beyond a rundown of the aforementioned currency pairs, there is not much of a tale to tell in today's FX market.

Virtually every market is closed today, leading to a blank economic agenda for New York traders. We would expect similar a similar trading environment for the final session of the week.

Upcoming Economic Data Releases (New York Session)

Dollar Back Under Pressure In Asia

2008-03-18T22:54:00.000-07:00

European Morning Update

News from Australia:
Prior Current
Australia
January Westpac Leading Index - 0.2% - 0.1%
March DEWR Skilled Vacancies +4.7% +4.1%
Q4 Dwelling Starts +1.3% +2.6%
February Preliminary BoP Imports (MoM) +6.0% - 1.3%

Numbers from Australia this morning were soft but not excessively and basically reflect the gentle slowdown in the economy. The leading index implied growth moderating to around 3.5%-3.8% so no one is going to get too bearish at this stage.

Dwelling Starts were still firm in Q4 but it is likely that the two interest rate hikes this year will take the steam off the housing market. Jobs ads were soft again and tend to suggest that the record low unemployment may not last for too many months if the trend continues.

Releases from Japan:
Forecast Actual
Japan
January All Industry Activity Index (MoM) +0.1% +0.0%

Industrial activity was a little softer in January but that wasn't far from forecasts and again does reflect the mild downturn that has already been seen, so no great surprises.

However, the Reuter's Tankan report was not quite so rosy with corporate sentiment deteriorating due to the continuing rise in raw material prices. The Manufacturer's MI slipped by 1 point to +8 which is less than half the level seen 3 month's ago at +21.

The scene is set for the BOJ's Tankan report on April 1st.

FOMC Cuts 75-BP, USD Edges Up

2008-03-18T22:51:00.000-07:00

The dollar regained some footing against the euro and sterling after the FOMC announced its decision to lower its benchmark lending rate by 75-basis points to 2.25%. The Fed voted 8-2 in favor of the cut with Board members Fisher and Plosser favoring a less aggressive cut. In the accompanying statement, the Fed reiterated that "financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters". The statement also addressed inflation, saying it expects price pressures to moderate but uncertainty for the outlook has increased. Nonetheless, the Fed added that downside risks to growth remain ¨C committing it to "act in a timely manner as needed to promote sustainable economic growth and price stability". Shortly after the policy announcement, Fed Funds futures were pricing in another 50-basis point reduction at the April meeting to 1.75%.

US equity markets, which rallied sharply ahead of the decision, maintained its gains, with the Nasdaq and S&P both up by more than 3% and the Dow Jones advancing by more than 2.5%. Additionally, investment banks Goldman Sachs and Lehman Brothers both announced better than expected earnings results, albeit at sharp declines from the prior quarter.

Economic reports released earlier in the session included building permits, which posted a sharp 7.8% drop in February from a 1.8% decline a month earlier to 978k units and February housing starts, which fell by 0.6% from 0.8% to 1.065 million units. The producer price index revealed lingering inflationary pressure with core PPI edging up to 0.5% versus 0.4% and up 2.4% from 2.3% a year earlier. The headline PPI number drifted lower to 0.3% versus 1.0% month earlier and falling to 6.4% from 7.4% in the previous year.

GBP Rally fades near 2.0270

The sterling's rally against the dollar stalled near trendline resistance around 2.0270, potentially forming a right shoulder in a head and shoulders formation on the 4-hourly chart. Price action suggests a move lower back toward the 2-level, with a breach of this neckline paving the way to a possible test of the 1.96-level.

Economic reports from the UK overnight saw inflation figures, with CPI higher to 0.7% reversing a 0.7% decline a month earlier and edging up to 2.5% on an annualized basis from 2.2%. The retail price index (RPI) firmed by 0.8% m/m and 4.1% y/y.

Currencies: Dollar In Free Fall

2008-03-17T05:31:00.000-07:00

The developments on the credit markets and the Fed actions in an attempt to stem the systematic risk on these markets continue to hunt the dollar. On Friday, the dollar tried to make a comeback in the morning session inurope, however the high profile events in the US credit markets (Bear Stearns) and the emergency action of the Fed on Friday and over the weekend only made the dollar sell-off to accelerate. EUR/USD already reached now highs above 1.5650 on Friday and the Fed emergency action over the weekend only reinforced the dollar distrust with EUR/USD spiking to new highs at around 1.5900 this morning. This very much looks a panic dollar selling

Today, the US calendar contains the current account, the NY Empire state Manufacturing, the TIC data, the industrial production data and the NAHB housing index. However, the developments on the credit markets and the market reaction at the Fed emergence actions will continue to take center stage today. .

Regarding trading, we have a long standing dollar negative bias and of course still don't feel any need to change this. However, this very much becomes an environment of uncontrolled market moves. The key question is whether the Fed action will be able to stop the bleeding on the credit markets and whether one could expect any coordinated action to stop the fall of the dollar. With respect to the latter, one can not exclude that central bankers will try to prevent more disorderly market moves. However, the question is whether such action has much chance of having long-term success as long as they are not backed by a change in the underlying fundamentals. The latter apparently look further away than ever. So, this very much looks like panic and erratic trading. It's difficult to give any guidance in this kind of trading but the last thing we would try to do is try to catch the falling USD knife now.

Looking at the graphs, the EUR/USD picture was already euro constructive and the break above the 1.4968/1.50 only opened the way for further euro gains. This picture hasn't changed after the (wild) swings of the previous sessions. Over the previous days, we put forward the MT moving average (today at 1.54.00) as our first short-term point of reference. A close below would suggest that there is room for some correction short-term. The fact that the actual rate moves that far away from the average is an indicator of overextended conditions. However, as illustrated over the previous sessions, this doesn't mean that the move can't go on even further. As said, we don't try the catch the falling USD-knife, even if this morning's price action has some kind of exhaustion move characteristics.

A 75bp Fed Cut Seems Guaranteed, But What About The Dollar?

2008-03-15T18:31:00.000-07:00

The double dip has come and gone. The dollar has plunged to new lows against many of its major counterparts. However, wading into the action, the most significant moves came on the part of the risk-related, carry pairs: USDJPY and USDCHF. Marking another remarkable milestone for the currency market, USDCHF dropped below parity for the first time in history. For the yen pair, 100 seemed a strong floor that would require a higher power (like BoJ intervention) to produce a significant break or rebound before next week's Fed rate decision.

In the end, all that was needed was the same driver that ushered the pair to its 12-year low over the past two weeks - risk sentiment. US policy makers made yet another concerted effort Friday to right the roiled credit markets. Just three days after announcing the new TSLF program, the Fed was prompted into action once again by the imminent collapse of one of world's largest investment banks. Bear Stearns CEO Alan Schwartz said in a statement this morning that his firm's liquidity position had "significantly deteriorated" from Thursday as investors made significant withdrawals on rumors the firm was facing a cash crisis.

Playing out much like the Fed's bailout of Long Term Capital Management back in 1998, Bear Stearns tapped the Federal Reserve of New York for temporary funding. And, since the broker does not have access to the discount window, the loan was actually made through JP Morgan on Bear Stearns behalf. This was certainly a necessary move as the collapse of a major investment firm like Bear Stearns in these fragile markets could trigger a global market crash. To further bolster confidence in the US markets, the Fed released a two sentence statement stating the bank stood ready "to provide liquidity as necessary to promote the orderly functioning of the financial system;" and President Bush reiterated his confidence in the US economy in a speech in New York. And, while the liquidity injection and assuring words may calm credit market fears, they also practically guarantee a 75 basis point rate cut (or greater) when the FOMC announces its policy decision on Tuesday. Fed funds futures have fully priced in 75bp of easing and set a 60 percent probability of a 100bp cut. If the Fed does lower rates to 2.00 percent, it will only be a mater of time before the market begins to realize the policy group is running out of options to salvage the economy and markets.

What's more, this attempt at securing the stability of financial stability has left the dollar out to dry. This has been the basis behind speculation that global central banks will collaborate for the first time in 13 years to rescue the dollar. The timing of such an effort will be critical.

Swiss National Bank Set To Leave Rates On Hold

2008-03-12T23:15:00.000-07:00

The Swiss National Bank will hold its latest quarterly monetary policy meeting on Thursday.

In line with most major central banks, the Swiss authorities are facing the combination of weaker growth and rising inflationary pressure. The bank will also be watching financial-market developments with increasing alarm as the franc continues to strengthen.

Although the evidence is that the pressures are still relatively mild, there will be some unease over the latest ZEW survey release which recorded a further sharp decline to -71.7 for February from -55.6 the previous month

The latest consumer inflation data also recorded an annual rate of 2.4% which is a high figure by the standards of Switzerland.

As well as the rate decision, the updated growth and inflation forecasts for the current year will also be watched closely.

Overall, the most likely outcome is that the bank will leave interest rates on hold and the franc will lose some ground is there is a significant downward adjustment to growth forecasts. The bank may also tae the opportunity to warn against excessive franc strength.

There is a small possibility of an interest rate cut which would weaken the Swiss currency sharply.

Is the Fed Trying to Avoid a 75bp Rate Cut in March?

2008-03-11T18:08:00.000-07:00

The Federal Reserve is getting desperate and they are pulling out all of the stops. Minutes after the US trade balance numbers were released this morning, the Fed announced auctions to lend as much as $200 billion in US Treasuries. Yesterday, we indicated that the dollar could rally this week and even though this wasn't the trigger that we had expected, it achieved the outcome.

Whether the dollar will continue to rally is dependent upon tomorrow's retail sales report, Friday's consumer price index and the amount of easing that the Federal Reserve delivers next week. In response to today's announcement, Fed fund futures are now pricing in only a 62 percent chance of a 75bp rate cut, down from 86 percent yesterday and 98 percent on Monday.

Today's plan helps to reduce the Federal Reserve's urgency to lower interest rates, but is that the main reason for their move? Yes and no. Over the past few months, the Fed has been growing increasingly frustrated with banks and their resistance to lend or to offer more flexibility to struggling homeowners. Not only has this hindered the central bank's efforts, but it has also exacerbated the liquidity strains in the financial markets. In response, the Fed is allowing primary dealers to swap their mortgage banked securities for Treasuries to raise cash. If the banks take the bait, the Federal Reserve may be able to avoid stepping up the degree of their rate cuts once again. In late January, the Fed slowed down by cutting interest rates 50bp.

If they have to step up the pace, it would immediately send a message to the markets that things are getting worse and the Fed is quickly losing control. (Will the Fed Cut by 50 or 75bp?) For currency traders, the announcement has been dollar and carry trade positive, but if tomorrow's retail sales report is weak, the dollar could easily give back a significant portion of today's gains.

We expect the volume of retail sales to decline, but with food and gasoline prices on the rise, the value of goods sold could increase which makes forecasting the retail sales report a particularly tough call. Nonetheless, consumer spending is the backbone of the US economy and if it is weak, even the generous move by the Fed today may not stop the dollar from falling.

Dollar Sidelined In Quiet Asian Trading

2008-03-11T03:07:00.000-07:00

European Morning Update

Releases from Australia:
Forecast Actual
January Home Loans (MoM) +1.0% +2.3%
February ANZ Job Advertisements +1.8% (prior) - 2.0%
February NAB Business Survey +13 (prior) +11

Asian releases were limited to Australia this morning and were overall mixed. In spite of repeated rate hikes Australians are still borrowing money to buy property. January home loans increased by a robust +2.3% - more than double the forecast of +1.0%.

They appear to be ignoring the global slowdown and also the first decline in Job Ads in 15 months. Further January's figure revised lower by 1.0% to +0.8%. It is hardly a huge problem right now with the annual figure still having risen by a solid 24.4%. However, with expectations that this turndown is probably the tip of the iceberg the year could see a deterioration albeit quite slowly.

And to top that the NAB's February business survey also saw conditions continuing to slowly deteriorate also. At +11 it is still relatively high and the economy is nowhere close to being described as soft but it holds the same message of a slowdown that should continue for the rest of the year.

German Exports Boom as the Euro Appreciates, but Can it Last?

2008-03-10T02:41:00.000-07:00

Germany's trade surplus surpassed expectations by nearly 2 billion in January as exports boomed to a 16-month high. Sales abroad grew by 3.8% as German firms saw ample demand in places like Russia and China to offset the slump in the US.

Euro bulls will find it encouraging that this occurred as the single currency tested 1.5000, having rallied some 17% against the greenback in 2007. Six weeks and 400 pips later, the question must surely be if the EZ's largest economy can maintain export growth momentum with the Euro at 1.5400.

While today's result certainly makes a powerful case for the resilience of Germany's exporters, it must also be noted that firms involved in international trade typically agree on a fixed exchange rate as part of the terms of a given deal. This means that it can take some time for the effects of an appreciating currency to be felt by the export sector as contracts expire and deals are re-negotiated. Continued US slowdown and rising energy costs will only add more cloud-cover to Germany's seemingly sunny prospects. If current trends continue to develop along the same trajectory, it seems unlikely that stellar export growth of the sort we saw today can endure much longer.

Euro Hits a Record High but Retreats

2008-03-08T01:04:00.000-08:00

The Euro hit a record high of 1.5463 after the US non-farm payrolls report but it ended up retreating almost instantaneously as carry trades came under pressure and news that the Federal Reserve expanded their lending hit the markets minutes after the NFP report. Eurozone economic data continues to be firm with German industrial production rising more than expected.

Unlike the Federal Reserve, the ECB is not particularly worried about the liquidity pressures in the financial markets. Instead, ECB member Weber warned that the markets are underestimating inflation risk. With coffee, corn, rice and other food prices hitting significant highs, we believe that he is 100 percent right. In the week ahead, the two most important releases out of the Eurozone will be the German trade balance and the ZEW survey.

Although economic data suggest that analyst sentiment should improve, this group of critics always tend to lean towards pessimism. Meanwhile the Swiss National Bank has a monetary policy meeting next week. Interest rates are not expected to be changed.

EURUSD Hits New Record High As Data Suggests Economy Already Contracting

2008-03-05T19:20:00.000-08:00

The EURUSD has pushed to a new record high in an aggressive rally that is looking to overtake the pair's next, even milestone at 1.5300. Such an aggressive sell off stands in stark contrast to the price action in the overnight where the dollar was trying to slowly regain its footing. This effort was quickly overwhelmed with the onset of the New York session though, when economic data triggered fears suggesting employment would no longer support the vital consumer sector and contractions in the economy's largest sectors confirmed the US was already heading into a recession.

US labor market data for the month of February has thus far sent mixed signals regarding this Friday's non-farm payrolls report. First, the Challenger index of job cuts fell by 14.2 percent from a year ago, suggesting that companies are not reducing their workforces. However, it is worth noting that major components of the services sector (consumer goods, food, entertainment) all showed a jump in layoffs, while government/non-profit agencies showed an even greater surge. Meanwhile, the ADP employment report unexpectedly fell by 23,000 - the first negative reading since June 2003 - as the manufacturing and goods-producing sectors showed net job losses. While the services sector continues to add on workers, it is occuring at a far slower pace and does not bode well for the employment component of the ISM non-manufacturing index due out this morning at 10:00 EST, nor the NFP release on Friday.

In turn, a contraction in employment only adds to the bearish outlook for the US economy that is already teetering on the cliff of negative growth. Following up on the ISM manufacturing guage which reported the sharpest drop in factory activity in nearly four years, its service sector counterpart marked revealed a more concerning turn of events. According to the group's proprietary survey, business among the service base (the largest sector in the US economy) held below the expansionary/contractionary 50.0 reading for a second month; but the indicator's reading was a considerable improvement over the previous month and well above the market's forecast. The 49.3 print was 2 points higher than the official forecast and was a 4.7 point improvement over January's reading which was the worst reading since the 2001 recession. However, this month over month change is less important than the fact that this print marks the first case of a back to back contraction in the service sector since 2002. This adds serious weight to to speculation that the world's largest economy is already in a recession; and we are just waiting for the government's GDP reading to confirm it. From the summary breakdown of the ISM report, there was a number of improvements over the previous month's reading, though many of those components were still contracting. A genuine improvement was noted in business activity and inventories. Production actually rebounded to 50.8 from the incredible 41.9 reading last month. This shift may explain the pickup in inventory and inventory sentiment over the same period - though cooling demand likely had its influence as well. Less impressive were the higher readings from new orders, backlogs and employment which were all still within contractionary territory. The unexpected drop in new export orders to 46.5 was a notable surprise. A cheaper dollar no doubt provided a discount to foreign consumers, but an overall cooling in demand seems to render this reasoning moot.

So, while the EURUSD showed some hesistation in surpassing yet another milestone in 1.5300, the fundamentals clearly leave the doors wide open to further deterioration in the US dollar. Technicals are also calling for continuation in the same direction that the fundamentals are leaning.

Danske Bank's ISM Monitor

2008-03-03T02:14:00.000-08:00

Comments on recent development

Following several months of decline, the ISM index saw a rebound last month from 48.4 to 50.7. As we noted in our comment, the comeback was mostly driven by a rise in production due to low inventory levels. As the new orders index remained subdued, the rebound did not seem sustainable.

This month the local indices have moved lower. A weighted average of the local indices suggests a fair value of the ISM of 47.3. On the other hand, inventory levels remain low and the orders data surprised positively in January, when stripping out the volatile components.

Our monthly model forecasts a modest decline to 49.0. Compared to this forecast we see downside risk due to the significant deterioration in the local indices. Consensus expects a reading of 48.0. On a three to six month horizon we predict that ISM will head for a level close to 45.0.

Dollar Finds Some Reprieve On Risk Aversion Though Data Keeps The Pressure On

2008-03-01T02:09:00.000-08:00

On a trade-weighted basis, the dollar closed the week at a fresh record low. However, against some of the currency's more aggressive counterparts, the pang of doubt in risk trends helped to keep the greenback from much worse. US equity benchmarks experienced their worst selloff since February 5th after insurer and Dow component AIG reported a massive $15 billion writedown on trouble mortgage securities.

This evidence that subprime losses have spread into more mainstream insurance in turn revived fears of a sustained credit crunch and temporarily saved the dollar from further losses in all its major pairings except the positive yielding USDJPY and USDCHF. If it weren't for the inadvertent assistance from risk trends, the greenback would likely have succumbed to the session's disappointing lot of scheduled economic data. The morning brought the end of the month spending numbers for January; and the readings did little to encourage a brighter outlook for the world's largest economy. Personal income rose 0.3 percent last month to outpace expectations while still cooling from December. A false sense of bullishness from a stronger than expected 0.4 percent increase in spending was quickly snuffed out when the market realized the boost was primarily due to higher prices and not greater volume. Further complicating the issue, inflation reported by the PCE deflator accelerated to its fastest pace in over two years. Irrational fears of stagflation are looking less absurd.

The rest of the session was reserved for the Chicago Purchasing Managers Index and final U. of Michigan consumer sentiment survey, both for February. The confidence gauge was revised slightly higher, though it was unable to shake 16-year lows. Equally concerning, the Chicago manufacturing report plunged to its lowest read in 5 years. Along with Empire, Philly and Richmond Fed indexes, this Chicago report promises a very week ISM reading on Monday. For the rest of the coming week, the fourth quarter mortgage delinquencies will asses the full damage in the lending market, but the market's true interest will lie with the expected 25,000 rebound in February NFPs.

What Drove the US Dollar to a Record Low?

2008-02-26T19:29:00.000-08:00

It has been a record breaking day in the financial markets with the US dollar falling to an all-time low against the Euro and crude oil futures closing at a record high. Although US Consumer confidence dropped to a 5 year low, that was not the primary catalyst for the dollar's slide. Instead, the downward spiral was triggered by the combination of things including comments from Federal Reserve President Kohn, stops being taken out at the prior high, weaker consumer confidence, stronger Eurozone economic data and concerns about what Ben Bernanke will say at his testimony on monetary policy tomorrow.

Kohn has already warned us that the central bank will do what it takes to fight a recession. With foreclosures rising 90 percent in the month of January from the same period last year, consumer confidence tanking and oil prices hitting new highs, it is absolutely necessary that Ben Bernanke makes growth his top priority. We doubt that the Senate our House panels will allow him to get away with talking about price pressure when most of their constituents probably feel like the US economy is already in a recession. Therefore even though the annualized pace of producer price growth rose was the fastest pace since 1981, the impact on the US dollar was limited because the market quickly realized that right now, stronger inflationary pressures will not stop the Fed from continuing to lower interest rates.

The futures market is still pricing in a 50bp rate cut for the March 18th monetary policy meeting and recent economic data suggests that the US central bank cannot afford to slow down. The price action in the US dollar today clearly indicates that this is what the market expects Bernanke to tell us tomorrow. New home sales and Durable Goods orders are also due for release. Existing home sales were stronger than expected, but new home sales should remain soft and even if it rebounds, it will not help the dollar much because either inventory will rise or prices will fall, or both.

As for durable goods, after increasing 5.2 percent in the month of January due to non-defense aircraft sales, a healthy decline is expected.

UPCOMING KEY ECONOMIC RELEASES

2008-02-25T01:47:00.000-08:00

Canadian Current Account Balance - Q4

Release Date: February 29/08
Q3 Result: $11.1B (non-annualized)
TD Forecast: -$0.9B
Consensus: -$0.2B

It's time for Canada to say good-bye to its days of twin surpluses, as the Canadian current account is likely to fall into deficit territory in Q4 2007 for the first time since 1999. We're forecasting a current account deficit of $0.9B, non-annualized, with the deterioration in the CA balance coming from a substantial softening in the goods and services balance over the last couple of quarters. From the previously-released international merchandise trade data, we know that the goods balance fell to only $9.2B for the quarter, from $10.5B in Q3. The services balance is also likely to deteriorate further, since the strength of the Canadian dollar during the quarter likley led to an increase in Canadians vacationing in the U.S., adding to the travel deficit. We think that the cumulative appreciation of the Canadian dollar over the last few years may have finally caught up the Canadian exporters, with the weakness in exports likely to persist through 2008, leading to the first annual current account deficit since 1998

U.S. Personal Income and Spending - January

Release Date: February 29/08
December Result: income +0.5%; spending +0.2%; core PCE deflator +0.2% M/M, 2.2% Y/Y
TD Forecast: income +0.2%; spending +0.3%; core PCE deflator +0.3% M/M, 2.2% Y/Y
Consensus: income +0.2%; spending +0.2%; core PCE deflator +0.2% M/M, 2.2% Y/Y

We're expecting to see U.S. income and spending continue to falter in January, with income taking an especially big hit. Since hours worked fell by 2.3% in January and the economy shed 17,000 jobs, the pace of growth in the wages and salary component will likely weaken substantially, leading income growth to soften to only 0.2% M/M. Meanwhile, we expect spending to come in at 0.3%, matching the gain in January retail sales. However, real personal consumption will likely be much weaker. And with the strength that we saw in core CPI in January, we're expecting to see the core PCE deflator increase by 0.3% on a monthly basis, with the Y/Y measure unchanged at 2.2%.

Euroland: Panic Effect Out of PMI

2008-02-23T05:46:00.000-08:00

Overview:

Flash PMI surprised to the upside with the composite PMI rising to 52.7 in February from 51.8. The rebound was driven by a stronger service PMI whereas manufacturing PMI fell in line with expectations. The number confirms that the very sharp drop in service PMI we saw last month was partly a sentiment effect as the survey was conducted during the time of the financial turmoil that led the Fed to cut 75bp - see Research Global: A stalling service sector . The level for service PMI is still quite low though confirming that the weakness is also related to weak consumer spending. The composite PMI points to GDP growth of 1.25%. This number means that the ECB will continue to be sidelined for now - especially given the bad news we have received on the inflation front with higher energy and food prices and the wage deals in Germany coming in high.
Details:

The service PMI rose from 50.6 to 52.3. Manufacturing PMI fell, in line with expectations, from 52.8 to 52.3. As the charts below show, the service PMI is still at a relatively much weaker level than manufacturing PMI, which has been going mostly sideways in the last few months. However, interestingly, the service sector has very often been the most leading indicator and this points to further weakness in manufacturing PMI in the coming months. The weak industrial surveys in the US also confirm that the industrial sector in general is weakening at the moment and, as in 2001, we think Euroland will follow gradually with some lag.
Outlook and assessment:

We expect composite PMI to grind lower in the coming months but it will probably take some time before it reaches levels where the ECB will act on it and cut rates. Even though the composite PMI is in the "cut zone" already, it will take more weakness for the ECB to cut because of the high inflation risks. Hence we do not see the ECB cutting before June. The market is already pricing in the cuts we see coming so we are fairly neutral on the euro bond market here. Two factors will be important: How weak will growth be (both in the US and Euroland) and how much will inflation and wages continue to disappoint?

Financial Concerns Persist

2008-02-21T18:08:00.000-08:00

The troubles facing the bond insurers, also called monoliners keep mounting, and further downgrades keep looming on the horizon. Warren Buffett's offer last week to be paid for taking over responsibility for USD 800bn in municipal bonds did little to ease concerns. The primary source of the current stress among monoliners is their exposure to mortgage-backed securities - not their exposure to municipal bonds. Reports that investors have begun to shun Auction Rate Securities, ARS, which constitute around USD 330bn of the USD 2,200bn municipal bond market, is yet another indication that perceived risks of further downgrades among monoliners are on the rise.

Leveraged loans to finance buyouts, LBOs, have been a burden for many banks since last summer. However, the prices of these loans in secondary markets have started to decline. Last week, S&P warned that a growing number of leveraged loans are in danger of breaching covenants or defaulting. Any relief to banks' balance sheets from the LBO front are unlikely in the near term. Against this background of persistent concerns, credit spreads keep widening.

The reports last week on `material weakness´ relating to the valuation of AIG's CDS portfolio highlight that independent auditors will be particularly thorough in their auditing of the 2007 annual reports for financial institutions. In the coming weeks, similar news stories may therefore emerge as the auditing processes for the annual reports progress. In the short term, this may pull down sentiment on financials.