Latest news on Asian Morning Update 7th April 2008
| Poor U.S. unemployment data puts the Dollar on the back foot European releases overnight: February Forecast Actual Friday’s German factory orders data was rather strange seeing a far worse than expected MoM figure while the YoY figure was boosted by past revisions. Domestic orders were flat confirming the lack of consumer demand. Several ECB officials offered the usual round up of often repeated statements, none of it of much consequence, that the U.S. economy is already in the midst of a recession and will overflow into the “real” economy and that could still cause a negative impact globally. One official, Alumnia, did suggest that the situation in Europe is not as bad as the IMF has suggested. The U.K.’s Financial Times ran an article on the credit squeeze which it says has intensified and thus the chances of a rate cut on Thursday’s from the BOE have risen. This came in response to the BOE report which outlined a probable worsening in the squeeze on mortgages and corporate credit. This has certainly placed more pressure on the Pound and while the medium term still looks bearish the prospect of a return to 2.0191 is certainly on the cards following Friday’s poor unemployment data from the States.
March Forecast Actual The non-farm payrolls were certainly pretty soft, the worst one month decline in five years in fact. It provoked a statement of disappointment from the White House. “Recession” has suddenly become a permitted word in officials’ statements now, used by both the White House and Paulson but always quickly followed by statements of growth in H2 as the fiscal stimulation package provides a positive impact. Paulson argued that while recession is possible the label is unimportant, preferring to focus on dealing with its practical effects. It didn’t stop the CEO of PIMCO to take a swipe at the situation by saying that U.S. treasuries are the most overvalued assets globally given the level of inflationary expectations. I guess that highlights the difference between politics and investment strategy… All in all it puts the Dollar onto its back foot again and does certainly look set to lose out again this week. The release calendar is not the most hectic but Thursday does see the BOE and ECB announce their rate decisions. The ECB are almost certainly to announce an unchanged policy, caught still between the conflict provided by the high level of inflation and the need to ensure that the credit markets remain stable. The latter continues to reflect that while official comment is confident, their actions suggest otherwise. The BOE rate decision has a little more uncertainty. U.K. figures have remained better that the doomsayers but there is still universal recognition that the U.K. economy is next most vulnerable to the credit crunch. The conflict of the implications here make the rate decision less apparent. There is once again a rising cry for a rate cut on Thursday but BOE official comments do not really point to this at the moment. Things could change over the next few days but as of now the greater chance still appears to be an unchanged policy. So as the week begins the Dollar should remain on the soft side with a decline towards recent lows on the cards. We do still have to be cautious even if the Euro penetrates the 1.5901 high as we are also approaching the G7 meeting at the weekend. Concerted intervention does not appear to be favored by the central banks but there has been a growing lobby for such action to bring back some stability to exchange rates. Notably we have seen comments from French, German and Japanese officials that appear to be pushing this line. Thus Dollar losses should be watch with some care but most likely this will be the overall preference shown by the market.
There following releases are due from Asia due today: Australia Japan See Also
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