Latest news on Asian Morning Update 14th May 2008
| Growth slides, inflation glides European overnight releases: March Forecast Actual April
In contrast the Monday’s reaction to the high PPI which sent the Pound higher, yesterday’s return sent the Pound lower as the market began to sniff the prospect of stagflation in the air. However, it’s probably a little too soon. Growth, while slower is not yet in imminent danger of sliding into recession territory and the BOE are mindful of this. However, the early signs are there with RICS publishing a bearish report on house prices and consumers slashing household budget cuts in order to make income stretch a little further than gasoline and food. The Pound may yet reach the 1.9300-30 area but beyond that will take a larger Dollar rally which doesn’t seem likely at this point. Mainland Europe took a day of rest from economic releases but the impact of the subprime crisis continues to be felt as Credit Agricole ponder a EUR 9.5bn rights issue following a disappointing Q1 profit. Societe Generale also posted a 23% drop in Q1 profits stemming from the credit crisis and also the one-off writedown from their experience with a rogue trader. So it didn’t take long for the French finance minister Largarde to say she has the agreement of experts that the Euro is still 10%-20% overvalued against the Dollar. Of course she had her back turned to the IMF as she obviously wished for more volatility to send the Euro lower… However, she still lacks the understanding that people will only buy Dollars if they have confidence in the currency and current levels hold value. Markets are not there to reflect what central bankers think…
March Forecast Actual April
And to put a more objective assessment that the recent comments that the worst of the credit crisis is over, Bernanke described markets as “far from normal.” He did feel that the Fed’s actions have brought limited improvement but will increase its auctions of cash to banks as needed. Overall the Dollar made limited gains yesterday, slightly more against the Yen. However, it wasn’t an enthusiastic vote of confidence in the Greenback and there is still come convincing to be done if it is to maintain gains. Today could be labeled as “CPI Day” with releases due from France, Italy and the U.S. The BOE is also due to publish its quarterly inflation outlook while Bloomberg is due to release its global consumer confidence index. It doesn’t really seem to have the makings of a directional day with the only real clearer currencies being the Yen and Pound where the Dollar should make further minor gains. However, the Pound doesn’t appear to have that much further to go on the downside while the Yen could still weaken in this environment on the back of short term carry trades. Japan is due to publish its domestic corporate service prices this morning which looks to have potential to be above the 0.5% MoM forecast. Japanese companies have been going through a campaign of retail price increases which are resulting in selective 5%-10% price hikes. Pressure is most certainly on the topside for CGPI and this may well cause the market to believe the BOJ will hike rates. However, with domestic demand weak and consumer confidence low this does not appear to be an option with inflation a result of external factors.
The following releases are due from Asia due today: Australia Japan See Also
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