European Overnight releases: March Forecast Actual
Italian Industrial Production (MoM) +0.0% - 0.2%
Italian Industrial Production (YoY) - 1.0% - 2.5%
U.K. Visible Trade Balance GBP - 7.5bn - 7.4bn
U.K. Total Trade Balance GBP - 4.4bn - 3.8bn April
U.K. PPI Input (MoM) +1.8% +2.4%
U.K. PPI Input (YoY) 21.4% 23.3%
U.K. PPI Output (MoM) +0.6% +1.4%
U.K. PPI Output (YoY) +6.4% +7.5%
The BOE will be gasping for breath following those PPI numbers yesterday. With cries over U.K. message forums berating the official inflation rate at 2.5% being understated by a large margin it threatens a barrage of wage demands in order for householders to meet their monthly bills.
It brings the weekend’s warnings from the IMF that global inflation is more likely the biggest threat to the global economy echoing in many ears. Banging on the ear drums was also crude oil prices which tipped over $126pb which will also spur higher food prices as farmers follow the highest yielding crop. And now, as the FT points out, even government finances are being hit by the combined banks’ writedowns threaten to reduce tax income by £2.5bn. Elsewhere came a range of comments from various ECB officials on the need for price stability which the market will take as a firm interest rate policy. Ironically the mere maintenance of high interest rates will not restrain inflation. Current levels are not a factor of economic strength. Maintenance of high interest rates with growing inflation will bring a sharper decline into low growth levels, higher unemployment and weaker consumer demand.
States Overnight news:
Stateside there were no economic releases. The Chicago Fed’s Evans observed that current levels of interest rates are “appropriate and balance out the substantial risks to both growth and inflation.” So where are we left? The Dollar fell back and the Pound rallied strongly following the PPI numbers on the assumption that the BOE will find it difficult to lower interest rates. However, it is tough to justify buying a currency where asset prices are under pressure, inflation is high, growth is tumbling as home foreclosures are increasing and consumers spend less… From comments made the market does appear to be at a lost for the next move. There is reason to sell the European currencies but nothing new on which to buy the Dollar. There are no releases from mainland Europe today and the prospect for the rest of the week does not look encouraging with industrial production and inflation number unlikely to inspire. Today does see the U.S. retail sales numbers for April and considering last week’s consumer credit numbers were much stronger than expected there may be a surprise upside element to the release. Indeed, I still see potential for one more Dollar high. The 106.82 Dollar-Yen target remains, as does the risk of a test of the 1.9335 lows in the Pound. Euro-Yen should have found a corrective peak last night and thus either Dollar-Yen or the Euro should see a stronger move lower. Euro-Yen’s recent declines have been predominantly caused by a lower Euro. Thus with Asia in a state of contemplative meditation today with no releases due the market is likely to remain in respectful equilibrium until two figures are announced – the U.K.’s CPI numbers which threaten a higher than expected return followed by the U.S. retail sales that could produce an upward surprise.
More later once the daily analysis has been done…
There are no releases due from Asia today. | 
