European releases overnight: December Forecast Actual
French Industrial Production (MoM) +0.7% +0.7%
French Industrial Production (YoY) +1.7% +1.2%
French Manufacturing Production (MoM) +0.7% +0.3%
French Manufacturing Production (YoY) +2.0% +0.8%
Italian Industrial Production (MoM) +0.5% - 0.5%
Italian Industrial Production (YoY) - 2.7% - 4.0%
U.K. Visible Trade Balance GBP -7.4bn -7.57bn
U.K. Total Trade Balance GBP -4.4bn -4.72bn
U.K. DCLG House Prices (YoY) +8.0% +9.1% January
U.K. PPI: Input (MoM) +0.8% +2.6%
U.K. PPI: Input (YoY) 14.3% 19.1%
U.K. PPI: Output (MoM) +0.4% +1.0%
U.K. PPI: Output (YoY) +5.1% +5.7%
U.K. PPI: Output Core (MoM) +0.3% +0.8%
U.K. PPI: Output Core (YoY) +2.6% +3.1%
Yesterday’s industrial production numbers from France and Italy are contrary to what the PMI numbers have been implying. The monthly numbers are mixed but the annualized figures highlight the downturn over the past year.
This slump is coming at a time when inflation still runs high and a weaker Euro could prevent any improvement, if not worsen, the headline rate over the coming months. European officials still maintain that the economy is robust though do acknowledge there is no way they can avoid a slowdown. Their plight over interest rate policy was explained by Trichet who said “We had a very thorough discussion because the situation is complex…As I said, there was no call for a rate increase and no call for a rate cut.” In simple language they are stuck between a rock and a hard place with no way out. Juncker also confirmed that they are not considering a fiscal stimulus plan as in the States. If the Euro-zone’s plight is concerning then the U.K.’s is worse. The producer price numbers were shocking. Annual input prices are up by 19.1%. Output is much less but it must be reflected in severely lower margins. The trade deficit is increasing and the subprime fallout is having a much larger impact. You can expect a lower Pound over the next 1-2 months and a much lower Pound by year-end.
U.S. news overnight :
There were no releases from the States overnight which provided a small reprieve though it was not without some negative news as AIG disclosed accounting “weakness” which caused understated losses on some investments. Credit-default swaps issued by AIG lost $4.88 billion in value in October and November, four times more than previously disclosed. This falls in line with the recent report that suggests the subprime fallout may cause losses of some US$400bn rather than the currently estimated US$180bn. This sort of news is not going to help consumer confidence with Gallup seeing continuing weakening in sentiment. A whacking great 78% of consumers see the economy getting worse. There are still those that think the States is going to avoid a recession, the St Louis Fed’s Poole being one of them. Commerce Secretary Gutierrez also thinks the fiscal stimulation plan will underpin the economy in the second half pointing out that employment is still steady along with exports and solid business investment that will provide a boost. Doubts are obviously there for the first half and this is where they may be a slip into recession. The White House acknowledged this but Bush is mor5e buoyant for the second half also saying, “Americans should be confident about the long-term strength of our economy.” However, if there is anything to show that central bankers are more concerned than they actually say then a comment from the Euro-zone’s Juncker may provide a clue. He revealed that the G7 meetings included discussion on joint market action if the market moves irrationally. He declined to elaborate on what “coordinated action” would actually mean and may cover all areas. Coordinated action in the FX market has not been seen for many years as it was deemed as ineffective in a largely competitive market. It should be an issue at this point.
Thus while the Dollar weakened a little in Europe this didn’t last for long and has since pulled back. We seem to be in the middle of a pullback lower in the Dollar but there does still seem to be more risk of a move higher again towards recent highs before a slightly larger pullback.
Thus today is likely to see just a little more Dollar weakening in European trading.
More later once the daily analysis has been done…
The following economic releases are due from Asia: Australian January NAB Business Confidence
Australian January NAB Business Conditions | 
