European releases overnight: December Forecast Actual
U.K. M4 Money Supply (F) (MoM) +1.5% +1.5%
U.K. M4 Money Supply (F) (YoY) 12.3% +12.3%
U.K. M4 Sterling Lending (F) GBP 17.4bn
U.K. Net Consumer Credit GBP 1.1bn +0.6bn
U.K. Mortgage Approvals 79K 73K January Prior Actual
Italian Retailer’s Confidence General 109.9 108.4
Italian Services Survey 15.0 12.0
Italian Bloomberg Retail PMI 44.7 43.0
French Bloomberg Retail PMI 49.1 56.2
German Bloomberg Retail PMI 44.0 44.2
Euro-zone Bloomberg Retail PMI 46.0 48.1
Swiss KOF Leading Indicator 1.84 1.70
Three notes to make from over night releases from Europe:
• U.K. mortgage approvals hit their lowest reading since 1999
• Swiss KOF adds to the increasingly negative numbers
• Euro-zone Retail PMI numbers show a healthy recovery This keeps the Euro under focus while the easiest weakness to see is the Pound from weaker demand in the housing market and the threat of lower house prices undermining consumer confidence.
U.S. releases overnight:
Q4 Forecast Actual
U.S. GDP Annualized (4Q A) +1.2% +0.6%
U.S. Personal Consumption (4Q A) +2.8% +2.0% January
U.S. ADP Employment Change 40K 130K
Aside from the 50bp rate cut the releases were a case of bad news and good news. Bad was clearly the weaker than expected Q4 GDP while the good was that ADP saw a healthy rise in employment.
All well and good, but the bad does tend to overwhelm the good right now and means the States is entering a new year at very low levels of growth that could easily tip over into recession. Forecasts must be for a negative Q1 and it will be up to the fiscal stimulation package to bring back the States from the brink… So the Fed went the whole hog and cut by 50bp. This actually places interest rates below inflation while Europe remains positive. The last 8 days has seen 1.25% slashed off interest rates, the most aggressive easing action since 2001. However, the vote was not unanimous with Fisher and Poole vote against a full 50bp cut. The FOMC still views the markets as being under considerable stress while credit has tightened for some businesses and households. They also note the recent sharp deepening of the housing contraction. They expect inflation to moderate.
Clearly the cut was deeper than I thought it would be but much as I pointed out that as Japan’s zero rate policy didn’t bring the economy out of recession, Treasury Secretary Paulson uttered similar words.
Paulson commented that while he is a “big believer” in the Fed’s actions, monetary policy is not the answer to everything. Very clearly the consumer must have confidence and this is what the fiscal stimulation package must achieve. He repeated his belief that a strong Dollar is in the country’s interest. However, that requires confidence in the Dollar by international investors. He carried on to say that “I believe we're going to continue to grow and we've got fundamental long-term strength and the strength of our economy is going to be reflected in the currency markets.”
Of course the market could do nothing else but sell Dollars following the GDP and rate cut.
Having said that, it did not spark panic. In fact, by recent standards the selling was quite muted failing even to reach the 1.4921 corrective high in the Euro, the long standing 1.0806-11 support in the Swissie and the 1.9954-62 corrective resistance in the Pound. In fact the Dollar’s momentum is showing classic signs of a possible bottoming pattern. However, it is really very difficult to argue a solid positive Dollar argument at this stage. The signs are there but the factors required for the market to take it higher are not yet quite in place. This will require the fiscal stimulus package to be enacted and applied. It will need more positive signs from the housing market that subprime loans are being refinanced. It will require stronger signs that the consumer is willing to spend again. Until then we can’t rule out further Dollar losses but the alternative of further consolidation while the market remains undecided.
More later once the daily analysis has been done…
The following are economic releases from Asia due today:
Australia – December
HIA New Home Sales (MoM)
Private Sector Credit (MoM) +1.2%
Private Sector Credit (YoY) 16.6% Japan
December Labor Cash Earnings (YoY) - 0.2%
December Housing Starts (YoY) -19.1%
December Construction Orders (YoY) - 6.3% January Nomura/JMMA PMI
January Small Business Confidence | 
