Latest news on Asian Morning Update 3rd April 2008
| The market lacks confidence in holding any currency at the moment European releases overnight: February Forecast Actual March German DIW GDP Forecast +2.1% (prior) +2.0%
However the IMF, while not forecasting disaster do point out that the Euro-zone economy is vulnerable. The Managing Director, Strauss-Kahn merely pointed out that the financial problems are beginning to impact on the rest of the economy. “In the euro zone, the situation is not as tense as in the United States,” he said. “But the transfer of the financial crisis to the real sector is beginning to be tangible.” As things stand of now the situation appears contained but the real problem will occur if the credit tightness continues for too long and begins to cause problems in debt financing. It isn’t on the cards right now but the potential problem is there if there is any deterioration caused by low consumer demand. It does seem to be a stronger risk in the U.K. as several other mortgage lenders withdraw home loans for non-existing clients. The first to act was First Direct, a part of HSBC. It is a blow to consumer confidence and this stands more chance of turning round and biting back in the future. Indeed, the BOE’s Tucker reiterated the BOE’s view that there is an “unusual combination of significant downside and upside risks to the medium-term inflation outlook.” Stability is obviously still a long way away.
February Forecast Actual March
Even if Bernanke finally admitted that a “recession is possible” it hardly comes as anything new to this market. Ha also said it would not be confirmed for 2 years anyway. It may seem a cagey response but it perhaps suggests that he is fairly confident that it will be a close call and reiterated that he is continues to expect a solid recovery in H2. However, there simply wasn’t enough good news for the Dollar to maintain its recovery. There are plenty of comments trying to explain this sudden burst of popularity ranging from a less pessimistic view on interest rates to the less favorable view of Europe after being slightly tarnished by the Deutsche and UBS writedowns. What is more likely is merely a shift of perception of risk. For a long time the States were seen as the greatest risk for another price shock. However, this is becoming more balanced. We also cannot forget that as H2 approaches there is a greater chance of strength returning to U.S. figures. At the very least it will stall too aggressive declines in the Dollar. However, risk of another shock is still the main driver for the market. For now the source of this risk is less decisive and this has caused a pruning of Dollar short positions Thus the status quo remains mixed but with the market watching for the first signs of any worsening from either side of the Atlantic. Thus, given the more perilous situation in the States the bias will still be to the downside.
There following releases are due from Asia due today: Australian March AiG Performance of Service Index See Also
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