Latest news on Asian Morning Update 1st May 2008
| Better GDP and lower rates ? but the market remains unmoved European releases overnight March Forecast Actual April
The weakness compounded with continues inflation does have the potential to cause more damage to the economy than just the credit crisis. It is still early days but it is something to watch out for. Trichet maintains that the Euro-zone economy is holding up, which in the circumstances is valid. It remains at a vulnerable juncture where minor price shocks could still wreak more damage.
April
The FOMC statement read: “Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook remains high. It will be necessary to continue to monitor inflation developments carefully.” The market had discounted the cut and thus this event has limited impact. The question that remains is whether the Fed will call a pause or halt to the cuts. Some point to the fact that a phrase in the March statement included the phrase “downside risks to growth remain” but was absent in this month’s statement. In many ways it would have been foolish for the Fed to make any definite statement which could put them in a straightjacket for future decisions. The basic fact is that the economy remains highly vulnerable to new shocks. The Fed will wish to retain the ability to react with appropriate actions if circumstances dictate. Clearly the fiscal stimulation checks are in the post but it will take some while to make any meaningful impact on the economy. However, recent figures, housing market excepted, have shown tentative signs of a steadying and if this continues the pressure on the economy could decrease. The Chicago PMI was slightly better than expected. It is nothing to get wildly excited about – it was the first time that the figures have seen 3 consecutive months below 50 since Q2 2003. However, there is still mixed news. Employment is looking weak and domestic demand remains timid and these are key to any recovery. The headline Q1 GDP was better than expected but it wasn’t all rosy. Consumer spending, which accounts for two-thirds of economic activity, grew at the weakest rate since the second quarter of 2001 and in the light of the weak employment numbers this remains a big issue. The housing market continues to plumb new depths and isn’t expected to recover until next year. Inventories were also high and accounted for 0.8% of the rise which leaves Q2 on rocky ground. So in the end all we can say is that it was better than expected but in no way provides sufficient confidence to provide any great confidence in a recovery that is required to avoid two consecutive quarters of negative growth. Almost certainly Q2 will be one of those quarters so it’ll still go down to the line. The Dollar gained a bit in early trading but suffered following the FOMC decision and we’re probably back to arguing what will happen next. The market will consequently attach greater importance to tonight’s ISM manufacturing and tomorrow’s non-farm payroll numbers to justify the next directional move. Signs of greater stability from both will be required to stop the market from beating the Dollar bearish drums again.
The following releases are due from Asia due today: Australia See Also
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