European releases overnight: January Forecast Actual
German Industrial Production (MoM) +0.3% +1.8%
German Industrial Production (YoY) +4.6% +6.9%
Euro-zone Leading Index 98.0 (prior) 97.9 Good number from Germany but European officials aren’t getting carried away. Weber feels the markets are underestimating inflationary risks which are likely to persist for a long time and contrary to others doesn’t feel that a slowdown will dampen these pressures. Wellink is uncertain of the final outcome of the global credit crisis while Noyer said that financial innovation may disrupt monetary policy. Without a doubt Weber is correct. The inflationary pressures that are emerging now stem from a factor that is unlike previous inflationary cycles. Oil has already reached $106 pb and OPEC are ready to squeeze more out of the situation. The credit crisis will squash narrow credit margins and the result will be further price pressures. The result may well be a fall out that could last several years before returning to a sense of normality.
States releases overnight:
January Forecast Actual
U.S. Consumer Credit USD 7.0bn 6.9bn
February
U.S. Change in Non-Farm Payrolls 30K - 63K
U.S. Unemployment Rate 5.0% 4.8%
U.S. Change in Manufacturing Payrolls - 25K - 52K
Friday’s unemployment data was as bad as we could have expected. The non-farm payrolls posted a -63K drop in which private hiring was down 101K. What is more the job losses were widespread which indicates that the subprime woes have stretched their impact to the rest of the economy.
It will be a big blow for the Fed which really requires a more stable employment environment to help boost spending. No jobs = no spending = a failed fiscal stimulus. It of course sent the Dollar lower and this was rescued by the Fed which added $50 bn in term auctions to ease liquidity pressure after seeing an increase in the pace of deterioration over the prior days. It also announced that it would increase amounts in its Term Auction Facility auctions March 10 and March 24 to $50 billion each. It may well prove to be a placebo within the broad spectrum of the issues facing the States right now. It may well smooth short term volatility but does nothing to solve the underlying problems. An interesting comment from the Fed’s Fisher should also temper the market clamor for aggressive rate cuts after he warned that the markets should not expect repeat of January rate cuts. He explained that the Fed took deliberate action in January but markets should not expect a repeat. In general Fed officials’ comments are becoming more pessimistic and almost suggest a sense of resignation that this is going to turn out to be a deep black hole that will take a long time to escape. Yellen: “The US economy is particularly exposed to downside risks from the unwinding of the housing bubble and disruptions in financial markets.” The Wall Street Journal noted that hedge funds are getting squeezed as lenders get tougher and look to reduce the degree of leverage in investments. This has come out of losses seen in the value of mortgage-backed bonds and other investments. Meanwhile the FT reports that Carlyle Capital Corp has missed some margin calls following the decline in mortgage-backed bonds and other investments.
While the Dollar recovered in late trading on Friday this morning’s open has seen steady selling of the Dollar again. The decline in the Dollar has seen virtually no significant correction over the past one month. The longer it goes, the more it seems there is the risk of a total collapse.
Technically there are signs of a slowing in the pace of the decline but these signals require confirmation and should there be any further losses below Dollar supports at 1.5472-00 Euro, 1.0110 Swissie and 101.00-20 Yen the next set of supports are some way lower. Intervention is a possibility but the timing of such an event that cannot be predicted and will only have impact once seen. However, if there is any chance of a deeper pullback there is little wiggle room on the downside now before heavier losses are likely. It really does appear to be a case of “Sell until someone proves it’s wrong.”
More later once the daily analysis has been done…
The following are economic releases from Asia due today:
Japan – January
Machine Orders (MoM) +2.6%
Machine Orders (YoY) - 4.5% Japan – February
Money Supply M2+CD (YoY) +2.1%
Broad Liquidity (YoY) +3.5%
Eco Watcher’s Survey: Current
Eco Watcher’s Survey: Outlook
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