Releases in early Europe:
                                                  Forecast           Actual
Japanese April Vehicle Sales (YoY)  -3.3% (prior)   +6.9%
U.K. Manufacturing PMI                    50.8                51.0

The rise in vehicle sales in Japan was rather a surprise but it appears to be a one-off as the removal of the termination of the gasoline surcharge which reduced retail prices of gasoline by over 20 yen per litre. However, they may have been too quick off the mark since the tax has been reinstated this week and should quash further buying.

The U.K. manufacturing PMI was released higher than expected but the price indicators rose to the highest level since April 1995. The output prices component rose to a new series record of 61.9 from 60.6 in March, while the input prices figure rose to 78.5.

The following economic releases are due today:

March
U.S. Personal Income           (MoM)   +0.4%
U.S. Personal Spending        (MoM)    +0.2%
U.S. PCE Core                      (MoM)   +0.1%
U.S. PCE Core                       (YoY)   +2.0%
U.S. Construction Spending   (MoM)   - 0.6%

April
U.S. Challenger Jobs Cuts      (YoY) 
U.S. Initial Jobless Claims     (26th)     360K
U.S. Continuing Claims         (19th) 
U.S. ISM Manufacturing                        48.0

The wording of the FOMC statement has provided a topic of conversation in the market. Has it signaled a pause, or possibly conclusion of the series of cuts?

Probably yes and no in that order.

There have been plenty of comments from the Fed outlining the limited impact that interest rates can have on an economy. Indeed, the bigger risk now comes from lack of confidence by the consumer and this comes down to a case of the chicken or the egg.

If consumers are afraid to buy then industry will suffer and workers will lose their jobs. If they lose their jobs then spending will decrease and cause industry to shrink further.

It’s a spiral that needs to be stalled at the earliest point and interest rates won’t solve that problem. The fiscal stimulus checks may provide a solution though. Ideally consumers will go out and spend their new found savings.

However, the problem we see now is that consumers are having to put aside more for gasoline and food and that still provides the real economy industries with problems. Again, this isn’t an issue that can be solved with interest rates.

Therefore it is highly likely that the Fed has decided to call it a day for the rate cuts… for now… However, I don’t think they have any though of announcing such a decision because it would likely be taken in the wrong way. 

Like all of us, they watch economic releases and will want to retain the flexibility to act further if they feel circumstances warrant. So they have paused but what the next move will be will depend wholly on future developments in the economy.

First off is the Manufacturing ISM tonight which will be observed to see whether it supports the Chicago PMI and also tomorrow’s non-farm payroll to make sure job losses are not in runaway mode.

Note important support and resistance areas:

         USDJPY        EURUSD       USDCHF       GBPUSD
Res:  104.86-17    1.5610-45    1.0544-00    2.0025-47
Res:  104.27-56    1.5540-80    1.0454-70    1.9908-47

Spt:   103.19-60    1.5465-97    1.0375-00    1.9815-50
Spt:   102.44-66    1.5340-80    1.0298-30    1.9770-80

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