European releases overnight: Q4 Forecast Actual
Euro-zone GDP (F) (QoQ) +0.4% +0.4%
Euro-zone GDP (F) (YoY) +2.2% +2.2% February
U.K. Industrial Production (MoM) +0.1% +0.3%
U.K. Industrial Production (YoY) +1.2% +1.3%
U.K. Manufacturing Production (MoM) +0.0% +0.4%
U.K. Manufacturing Production (YoY) +1.5% +1.9%
Another quiet European session that brought disappointment to Sterling bears as industrial and manufacturing production both returned better than expected numbers. It now makes the BOE decision later today far less the certainty that the market had discounted.
There have been a number of comments from BOE officials that since there has been no obvious sign of distress in the “real” economy it provides no reason to cut rates at this point. To be honest the counter argument is consumer sentiment which has evidence of being in a lead lined coffin. So today’s decision will be a tense one going right up to the line. Whatever the outcome, and even if it causes the Pound to rally further, a rate cut is not that far away and there will be plenty of sellers into that recovery.
States releases overnight:
February Forecast Actual
U.S. Wholesale Inventories (MoM) +0.5% +1.1%
There was just wholesale inventories on the release slate last night and a higher than expected number while consumers tightened belts is not a good result. The impact should be lower orders over the coming months until stock levels normalize.
Away from economic releases there was a range of comments being uttered from various sources. Most really covered the same old ground of the housing decline having still some way to go, the credit illiquidity still provides downside risk and of further unpleasant shocks. Former Fed Chairman Volcker declared much of this was caused by greater weighting given to spending and not saving, commenting “Financial crises usually don't come along unless there are other underlying problems in the economy.” Basically I agree, but it looks like he’s thinking one step ahead. The reckless development of SIV’s and poor risk management caused the situation to blow. Volcker’s observation of spending versus saving is what will drive it deeper and for longer as a fallout as consumers suddenly tighten the household budget. Citibank is clearly trying to clear its balance sheet of these cancerous products as it closes in on a deal to sell $12bn in leveraged loans. Let’s hope they don’t get repackaged with more gloss and tied up with flimsy string. And if central bankers have been hoping for the slowdown in growth to ease inflationary pressures then they’ll groan at the report from the World Bank which declared higher food prices are to persist. They claim this is not a temporary phenomenon and expect prices to remain solidly above 2004 levels for another 7 years at least. With oil prices pushing $109pb there is little incentive for farmers to switch back from biochemical fuels in favor of lower income generating basic food products. This is a world of imbalance that has been bloated by geopolitics, power and globalization inspired “greed is good” phenomenon and it isn’t about to dissipate quickly. Hang on to your hats since the stronger risk is for more problems to bubble to the surface… And on the back of that the Dollar finally broke lower. It should continue further but we do still have to get over the first two hurdles in the ECB & BOE rate decisions and which will then be closely followed by the G7 meeting. Some are beginning to speculate on a tougher stance on Forex levels. I tend to like that outcome but I have to admit that it suits my technical view that the Dollar is in a bottoming phase. Anything above 1.5900 Euro is risky as far as I am concerned. The ideal minimum target is 1.6245 but I have significant doubts that it can get that far. Lower potential stalling points are at 1.5985 and 1.6065. And don’t bet on the Swissie making new lows – and at this point neither Dollar-Yen. Well, that’s a technical view. However, the only way G7 can put any stronger intent into their statement is going to be through market intervention and that is something they abhor like rednecks avoid a shower. Merely saying “you naughty boys in the market, if you don’t stop we’ll have to smack your wrists” is not going to have much impact at all… So for today it’s a case of swings, roundabouts, hurdles and keeping your head below the parapet.
More later once the daily analysis has been done…
There following releases are due from Asia due today: Australia
March Employment Change +10.0K
March Employment Rate 4.1%
March Participation Rate 65.2% April Consumer Inflation Expectation Japan – February
Machine Orders (MoM) -14.0%
Machine Orders (YoY) + 0.8%
Trade Balance BOP JPY 1110bn Japan – March
Money Supply M2+CD (YoY) +2.4%
Broad Liquidity (YoY) +3.5% | 
