Latest news on Asian Morning Update 9th April 2008
| The Forex market remains trapped between the desire to sell and the desire not to sell? European news overnight: Yesterday was an unusually quiet day on the economic release front in Europe and all news was left to central bankers who have raised their rhetoric ahead of the G7 summit. Even these didn’t really bring anything new but did lead the way for the officials’ positioning at the weekend.
Forecast Actual Pending home sales dropped to the lowest level on record since 2001. The damning issue with the low figure is that it has occurred during the normal high season for sales as spring brings out buyers as the weather improves. Back in Europe Weber repeated the fact that the market turmoil is still a risk to global growth. He pointed out the reduction in credit liquidity has increased problems for those institutions requiring fresh capital. Add to that the U.K.’s Telegraph newspaper which pointed out my observation that the credit crisis is hitting high street sales. Central bankers have been issuing statements of confidence, avoiding putting further dear into the consumer. However the reaction amongst householders is naturally to put barricades around their finances and this is where the biggest danger of a sustained downturn really lies. The FOMC minutes highlighted that Bernanke had probably already anticipated the questioning in last week’s testimony as the minutes admitted that a “contraction in economic activity in the first half of 2008 is likely.” They saw no sign of a bottom in the housing market and this prompted concern over “a prolonged and severe economic downturn.” Greenspan also suggested that the bottom will not be seen until early next year. It also provided the cue for Greenspan to declare that this will be the worst credit crisis in 50 years. The full amount of damage caused by the subprime fallout will not likely be known for months he added. The IMF has forecast this to be around 0bn that will be wiped away from global wealth. Indeed, the IMF launched a scathing criticism on financial institutions accusing them of “excessive risk-taking” and “weak underwriting” as well as lax controls in which saw a failure in the banks' risk management systems to appreciate that the new “structured finance vehicles” that they used to offload their risky sub-prime investments were not really viable. Finance ministers may be discussing a plan for a coordinated reaction to the crisis but the deed has already been done and there is no way they can retrieve the lost (estimated) 0bn in wealth and this can only have a detrimental impact on credit availability for a long period to come. The real fear is the possible temptation by institutions to attempt to sweep the dust under the carpet which will only come to light at a later date and prolong the crisis. The more immediate problem is the growing unease among consumers and their reluctance to spend which is being seen across the globe. This can only cause corporations further problems and will likely cause the weaker to fall by the wayside. If in this process the poorly capitalized LBO’s cause losses for banks the entire mess will raise to a new level. In spite of the poor pending homes sales and the openness of the FOMC in admitting a recession is an almost certainty in H1 the Dollar has walked away unscathed. It once again highlights the fear that the problem is expanding around the globe and there is less assurance about selling Dollars. For the moment the immediate concern remains tomorrow’s rate decisions from the BOE and ECB and the G7 meeting on Friday. It does seem to be forcing the Dollar into a messy consolidation and will keep players from pushing the extremes of ranges too strongly. With no leader the BOJ decision can only be one of no change.
There following releases are due from Asia due today: Australian April Westpac Consumer Confidence - 9.1% (prior) Japan March Machine Tool Orders (P) - 0.5% (prior) See Also
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