Releases from Europe: April Forecast Actual
U.K. M4 Money Supply (MoM) -0.7% (prior) +0.6%
U.K. M4 Money Supply (YoY) 11.2% (prior) 11.1%
U.K. M4 Sterling Lending GBP 26.0bn (prior) 27.9bn
U.K. Net Consumer Credit GBP 1.0bn 0.90bn
U.K. Mortgage Approvals 65K 58K May
U.K. Manufacturing PMI 50.5 50.0 Yesterday’s European data was mixed but still sees the Euro-zone turning in modest growth in spite of the slowdown. Out of the European countries as a whole the U.K. is clearly the one that has suffered the most with the manufacturing PMI now sitting squarely on the 50 boom/bust level. It is the BOE which has the unenviable position of wanting to cut rates to alleviate the slowdown but is restrained with a high inflationary level. The record is getting rather worn down now but this is the situation facing all major industrialized nations. Politicians generally remain quiet so they can lay the blame at the politicians feet while central bankers talk-the-talk but are not equipped with tools to control the conditions which are bleeding economies life blood. Trichet holds the mandate of price stability close to his heart but even he knows he is on a losing wicket. He loves to take the kudos for the growth seen over the globalization boom by saying “Everyone can see that we have created a lot of jobs - more than the US - since the beginning of the Euro” but he steps onto uncertain ground when he comments “it is absolutely true that our fellow citizens want us to ensure that price stability is maintained in a period when the inflationist challenges coming from outside are numerous.” From his comments he clearly wishes he had more power in controlling wage settlements and tax but these are not within his control. The basic fact is that inflation is far too high and from a critic’s point of view the ECB has failed to maintain price stability. However, that is a harsh judgment considering inflation is externally generated but if he wishes to take the kudos for the growth, then he needs take the rap for allowing globalization turn into a bubble that has burst… The problem with what has happened now is that price stability has already been compromised and he is expecting the consumer to endure the pain for the consequences. In doing so he steps into a quagmire of the entire emotions of ordinary folk struggling to make a living and to support a family. It is through this where the next major impact on the economy will come but are issues over which central bankers and politicians have very little control.
Releases from the States:
April Forecast Actual
U.S. Construction Spending (MoM) - 0.6% - 0.4% May
U.S. Manufacturing ISM 48.5 49.6 Meanwhile the U.S. manufacturing ISM has rallied together with the improving regional Fed surveys and is now within touching distance of expansion/contraction equilibrium. However, it wasn’t all a positive story. New orders slipped badly by 3.2 points to 46.5 – the fifth decline in six months and represents the worst contraction since 2003. The recovery is still tentative and basically the Fed and U.S. administration alike are probably sitting and holding their breath, praying that consumers spend their tax rebate. They may well have to just to cover costs but one has to question how long that impact can last. It is quite probable that we will see better numbers from the States over the coming 2-6 months but what we should be looking for in that period are signs of alleviating inflationary pressures and a recovery in consumer confidence. Without it, once the rebate checks have been spent, the risk is for the economy to slip back over the precipice… Where does that leave the Dollar? Well, in spite of the positive ISM the market really didn’t know how to react. It is still currently transfixed by the prospect of interest rate moves. The IMF has recommended that the ECB retain an unchanged policy – and this does seem to be the likely outcome. The market also is ruminating the possibility of a U.S. interest rate hike but this is too early. The Fed knows the score and they know the key to recovery is confidence and they aren’t going to take steps to wipe out any benefits from their actions up to now. The talk from both Fed and ECB officials are more rhetoric in an attempt to keep the market guessing but they know changes in interest rates (except perhaps lower – which they don’t want) are not something that can be put through right now. But what this does do is keep the Dollar in tight ranges for the week with the main potential for moves coming from the ECB decision and Friday’s U.S. non-farm payrolls. There is little on the slate today that can trigger any significant move so emphasis will be on picking support & resistance levels and taking profits when seen. Technically there is probably more room for one more recovery in the Dollar before it falls back into range.
More later once the daily analysis has been done…
The following releases are due from Asia due today: Japan
May Monetary Base (YoY) - 0.8% Australia
April Building Approvals (MoM) - 0.1%
April Building Approvals (YoY) - 3.3% The RBA are due to announce their rate decision
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