Latest news on Asian Morning Update 29th April 2008
| Action and reaction are equal and opposite European releases overnight April Forecast Actual
I have no argument with that… ECB members continue with the repetitive rhetoric of sharp swings in Forex rate being a concern (Trichet) emphasizing longer term goal of price stability. They continue to recognize the fact that the world financial system faces real financial crisis (Mersch) but of course it’s all America’s fault. European banks will be able to absorb the resultant losses he claims.
Elsewhere S&P warned that the declining conditions in the economy raise the chances of U.S. bank downgrades. They commented, “If this credit cycle becomes more extreme than prior cycles, which promises to be the case for the mortgage sectors, we could lower ratings for at least some of these institutions.” I have always gone by one of Newton’s law of physics: “Action and reaction are equal and opposite.” Watch the financial markets and you’ll see the same is true. The more excessive a trend moves the more excessive the resultant reversal. Reference the Japanese economic bubble of the 1980’s. Now reference the globalization bubble. It is difficult to assess just how extreme globalization trend became. We can see the impact of the excesses in the financial markets which has burst with a resounding bang. As for industry the entire picture is less clear because of the wide reach into developing countries. It did represent a series of swathing changes in global business but just what risks were taken are less clear. Just how much there was reliance on cheap funding, leverage and relatively low inflation is an unknown factor. As we move into higher inflation and higher infrastructure costs including oil prices the impact is far less certain. However, there will be impact. As for currency levels tomorrow’s FOMC and Q1 GDP will continue to provide an overhang on the market’s desire to open risk. Yesterday was a particularly flat day and today risks the same. If there is any potential move then it seems more likely for the Dollar to drift back lower as Friday’s long positions are squared ahead of the results. The high degree of uncertainty over whether the U.S. will actually register negative growth and just what the Fed will do and subsequently say regarding the future course of interest rates is big enough to cause most to prefer to sit and watch TV than play around with positions in a thinner than normal market. However, perhaps “inaction and reaction are equal and opposite” with the resultant risk that the end of the week will see a much stronger reaction…
More later once the daily analysis has been done… The following releases are due from Asia due today: Australian HIA New Home Sales (MoM) See Also
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