European releases overnight: January Forecast Actual
U.K. DCLG House Prices (YoY) +7.5% +8.0%
U.K. Leading Indicator Index (MoM) - 0.5% (prior) - 0.2%
U.K. Coincident Indicator Index (MoM) +0.2% February
U.K. NIESR GDP Estimate +0.4% (prior) +0.5% March
German ZEW Survey: Current Situation +30.0 32.1
German ZEW Survey: Economic Sentiment -40.0 32.0
Euro-zone ZEW Survey: Economic Sentiment -42.0 35.0
Solid numbers from Germany again as the ZEW survey recovered following a series of losses and this reflects the recent industrial production numbers. In the Euro-zone overall this week’s industrial production numbers have been solid and quite encouraging, again reflected in the ZEW survey.
However, Weber reiterated the ECB stance on interest rates by saying “It is by no means certain that inflation will fall markedly through 2008” which doesn’t leave room for any rate cuts. He is also sounding a little more bullish on the German economy but still acknowledges the high downside risks. Mixed numbers from the U.K. though recently numbers have stabilized and the bearish sentiment for the Pound has waned. However, Standard & Poor's warned that the high level of consumer debt makes the U.K. more susceptible to the credit crisis. Indeed, they quote that housing and consumer debts make up two-thirds of the European total. In addition the U.K. has a large exposure to exports to the U.S. which also warns of deteriorating industrial activity.
States releases overnight:
January Forecast Actual
U.S. Trade Balance USD -59.5bn -58.2bn
Clearly the largest news of the night was the concerted bank intervention. Not the Forex kind but the addition of liquidity. The central banks of the U.S., Canada, U.K., Euro-zone and Switzerland announced the plan to inject over US$ 200bn into the money markets to spark a sharp recovery in both equities and the Dollar.
The Fed is lengthening the term of loans to primary dealers from overnight to 28 days by a pledge of other securities, including federal agency debt, federal agency residential- mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS. Auctions will be held on a weekly basis, beginning on March 27th. It has been clear that cutting interest rates has not had the desired impact on the credit crisis that had been anticipated with the decline in the Dollar actually increasing inflationary pressures through higher import costs which includes the strong rise in oil prices.
However, the economy still needs to recover for the process to succeed but this does provide a foundation for this to occur although there is risk that banks use the funding to bail themselves out of a fix.
So what does this mean for the Dollar? Well, last night’s recovery was clearly a knee-jerk reaction in protecting Dollar short positions – or more that they were pruned back. It is unlikely that the market will see this as a panacea for all the current problems and will remain unconvinced until some greater signs that the economy will either skirt recession or will see only a mild dip before recovering. We still have the IMF looking for a recovery in H2 which is all well and good but unless they see some better looking numbers the risk is for cynicism to take the Dollar back lower. This is more probably the route the Dollar will take. The call I have been making for a recovery in the Dollar has been correct – although I had not anticipated this sharp reaction. What it does tend to suggest is that the next 2 weeks is likely to be plagued with narrow range trading as bulls and bears battle out but without either side winning. Thus while today is likely to see marginal new highs there should be a cap not too far away.
More later once the daily analysis has been done…
The following are economic releases from Asia due today:
Australian March Westpac Consumer Confidence Japan
Q4 GDP (F) (QoQ) +0.6%
Q4 GDP (F) (YoY) +2.3% January
Trade Balance BOP JPY 73.1bn February
Domestic CGPI (MoM) +0.3%
Domestic CGPI (YoY) +3.3%
Bankruptcies (YoY)
Consumer Confidence The BOJ are due to publish the Board Meeting minutes of the 14th-15th February | 
