Latest news on Asian Morning Update 18th April 2008
| Dollar mixed to firm overnight on Juncker?s comments European overnight releases: February Forecast Actual April The BOE maintains its provision of liquidity with banks bidding for GBP50bn which was the highest in 3 months. The CB offered GBP 13.7bn in yesterday’s weekly auction. The U.K.’s Telegraph newspaper reported that the Treasury is ready to give support for a Government-backed plan to help mortgage companies start lending again in the wake of the credit crisis. The CB is reported to have agreed to taking over mortgage loans sitting on lenders' balance sheets in order to increase the liquidity in the money markets through the granting of Government bonds in exchange for securities backed by UK mortgages. Solid numbers from the Euro-zone and not quite so for Switzerland which saw the ZEW survey crash and burn to follow the German figure earlier in the week. No comment from the SNB but ECB members were quick to jump on the opportunity to press confidence once again to reinforce the delinking of the Euro economy from the States and the maintenance of the current level of interest rates.
April Mixed numbers from the States. The leading indicator was as expected but at +0.1% does provide a hint that H2 may well prove slightly more stable at the very least. However, the extent of the rise is limited and could well have been fueled by some one-off abnormality. Regional Fed surveys are still mixed and while Monday’s Empire State survey was very positive the Philadelphia one provided the exact opposite impression. It shows that conditions are still very volatile and more likely this type of conflicting report will continue for some months to come.
“I don't have the impression that financial markets and other actors have correctly and entirely understood the message of the G7 meeting. Because of recent macroeconomic and inflation data from the U.S. and the European area, there has been a move in the other direction, a direction that I don't consider desirable.” The astonishing part of this is that he clearly has no idea what constitutes a market. It is an arena where market participants can exchange one currency for another. This includes participants from all areas from the consumer going on holiday through to corporations hedging exchange risk, bank traders, hedge funds and central banks. The Forex market is probably the purest of all markets and almost impossible to manipulate for any sustained period of time – which is why central banks shy away from intervention. If what Juncker is suggesting is a global exchange rate peg such as the old European Union then he has to be prepared to defend levels if supply and demand forces a rate through these levels. If he considers there has been excessive leverage which has contributed then controls on the degree of leverage that can be taken must be put in place. However, at that point the rules on this must be global and not covering a selected group of countries else it will ironically cause greater manipulation by those without controls. If he considers that volatile exchange rates are causing market conditions to remain unstable then the answer is central bank intervention. The Dollar briefly benefitted from the statement but only to levels indicated in the Pro Commentary report and clearly there is still downside risk for the Dollar against the Euro. However, the technical signs are for a Dollar recovery over the next 6-8 months and in all probability at this stage the Dollar has established medium term lows against the Yen and Swiss Franc. All currency pairs are now seeing rising Dollar cycles (with the exception of a new low in Dollar-Yen in July) and this should mean the Euro’s strength is limited. What will cause this is unknown at this point but very clearly the Dollar is proving very resilient against the Swiss Franc and Yen, the latter rising back to the 102.93 high seen two weeks ago. Perhaps a new Euro high will force the central banks to intervene. Perhaps there is just a basic timing factor among short Dollar position holders who will want to pare their risk ahead of H2.
The following releases are due from Asia due today: Australia – Q1 Japan – March The cabinet office is due to publish its monthly economic report See Also
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