European releases overnight: December Forecast Actual
German Producer Prices (MoM) +0.2% - 0.1%
German Producer Prices (YoY) +2.7% +2.5%
Swiss Producer & Import Prices (MoM) +0.2% - 0.1%
Swiss Producer & Import Prices (YoY) +3.2% +3.0%
U.K. PNSCR GBP 14.1bn 17.0bn
U.K. PSNB GBP 7.1bn 7.8bn
U.K. Sterling Lending GBP 14.5bn 17.3bn
M4 Money Supply (MoM) +0.4% +1.5%
M4 Money Supply (YoY) 11.0% 12.3%
U.K. Rightmove House Prices (MoM) -3.2% (prior) - 0.8%
U.K. Rightmove House Prices (YoY) +4.8% (prior) +3.4%
Yesterday’s European numbers sparked a surprise with the lower than forecast producer prices as both Germany and Switzerland posted negative MoM figures. This is an interesting development from December which saw oil prices touch $100 pb. Indeed, with the pullback seen this month there may be room for further steadiness at the very least when the numbers are released and possibly even a slight easing in the YoY numbers.
Now whether this is totally oil related or whether European businesses has followed the U.S. lead in improving productivity is unclear. However, if this does occur it’ll smack the Euro in the face as the threat of higher inflation may well recede. Early days, but one to watch out for. Also some voices of reality from the ECB with Wellink stating “I think it [2008 growth] will rather be 1.5% than 2.5%.” It was accompanied by a comment from Noyer who observed “It seems there could be at least a partial decoupling [from the US]. That is not to say that we are immune from a weakening US economy.” The common assumption has been that globalization will eradicate the ups and downs associated with U.S. growth. Well, it probably smoothes out some of the fluctuations but even the IMF Managing Director pointed out last night that even developing countries are also suffering from the slowdown in the U.S. It all adds up to the strong possibility that the rosy picture surrounding globalization may not be glowing quite as bright as anticipated. I have always pointed out that the prospect of further downward adjustments to European GDP forecasts is a strong possibility. Again, as commented above, it will aga8in smack the Euro in the face if the market senses lower interest rates…
U.S. releases overnight:
While the U.S. enjoyed a breather for Martin Luther King Day the rest of the world voted with thumbs down for Bush’s fiscal stimulus package. Global stock markets saw some of the biggest one-day drops on fears that the U.S. will almost certainly enter a recession. The Wall Street Journal added salt to the wound by commenting that the warning signs point to not a mild recession but a deep one. Its argument that since the last two (which occurred over the past 25 years) have been mild and thus this risks being stronger is rather tepid, one cannot discount the possibility. However, I doubt it will happen this year. Following a sustained period of robust growth on the back of globalization the potential for a stronger pullback is also ever present. Being the U.S. presidential election year there will be significant political will to smooth over the current troubles. Next year will be a different situation…
As for the currencies, the sharp decline in the stock markets failed to ignite the same Dollar selling that was seen following the initial market fall out in August. In fact the Dollar, by and large, made good gains with the exception of against the Yen.
We’ll have to see whether this is just a reaction to the States being on holiday, but I suspect there could be something else causing this. We should recall that IMM net short Dollar positions doubled in the first week of the year and I pointed out then that these will be at risk. It is not clear whether these have been squared at a loss already or whether they are still at risk. I certainly don’t think we’re going to see sustained Dollar strength right now. In fact I have been expecting one final dip in the Dollar and we’re at fairly good resistance levels right now. We should therefore find that the Dollar will make a belated move lower over today and maybe tomorrow.
More later once the daily analysis has been done…
The following are economic releases from Asia due today:
Australian December New Motor Vehicle Sales
Japanese December Supermarket Sales (YoY)
Japanese December Machine Tool Orders (YoY) The Bank of Japan are due to announce their rate decision – no change expected | 
