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Hello fellow readers, I'm sorry for letting you without our daily reports for the last couple weeks. This time was needed in order to take things in the right place and now make a better blog for all of you.

As you may notice we added new Tags in the posts, so now you have more content to explore in Money Making Lounge. We will continue posting daily the best reports for you. Our template is clear and we work hard to never use abusive advertising here. I'm dealing with some customers that are interested to advertise their trademarks in Money Making Lounge, in order to bring the necessary resources.

We will continue with Bidvertiser, I got some people asking me why not use Adsense once it pays more. The point is cause Bidvertiser fits good and is not very burocratic, you can get paid through Paypal and is simple too.

If you want to contact MML please use my e-mail: mafaltti@gmail.com

Thanks for your understanding.
A. Mafaltti

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Foreign Exchange Market Daily Update

The US dollar plunged across the board hitting a new all-time low against the euro and below 100 yen for the first time since 1995 as US retail sales fell unexpectedly last month, adding to the concerns that the United States has entered a recession. In other news this morning, a Carlyle Group fund moved closer to collapse, adding to turmoil in financial markets. The dollar approached parity with the Swiss Franc and slumped versus the British pound after Carlyle said lenders will take over assets of its mortgage-bond fund. Carlyle Capital Corp defaulted on $16.6 billion of debt keeping markets expecting more Fed interest rate cuts. The Fed's attempt at boosting liquidity at the beginning of the week was not enough to restore the confidence in investors and risk aversion will continue as US dollar sentiment continues to deteriorate rapidly ahead of March 18th's FOMC meeting.

The euro soared to unchartered territory against the US dollar as credit market stress reared its ugly head again. European Central Bank President Jean-Claude Trichet reiterated in an interview published today that “disorderly movements in exchange rates are undesirable from the point of view of economic growth.” Despite the ECB President's concern over the recent excessive exchange rate movements, particularly against the US dollar, the EUR has strengthened 7% versus the US dollar this year, building on the 12% gains in 2007.

Sterling rocketed versus the weakening US dollar, taking advantage of the growing sense in financial markets that the Federal Reserve's recent actions to ease credit market strains will not work. England offers the highest interest rates in the G7 nations, which benefits the British pound, due to a widening yield advantage. The Bank of England is not going to cut interest rates any time soon as inflation is likely to rise in the near term.

The Japanese yen shot to the highest in a decade versus the US dollar following poor US economic data and renewed liquidity woes. The yen also gained as investors exited so-called carry trades, in which they borrow in a country with low interest rates and buy higher-yielding assets elsewhere, earning the spread between the two. The risk is that currency moves erase those profits. So far in 2008, the yen has strengthened almost 10% against the US dollar and the Nikkei 225 index has fallen nearly 20%.

The Canadian dollar gained against the greenback supported by record oil and gold prices once again, but has not broken out of the recent range. Canada has strong economic ties with the United States, where it sends the bulk of its exports, so the health of the US economy may eventually start to weigh on the performance of the Canadian economy.

The Australian and New Zealand dollars continue trending higher aided by strong commodity prices and concerns about the US economic slowdown.

Union Bank of California
The Bank of Tokyo-Mitsubishi Group

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Posted in: Economy,Finance and Investment,Forex

US: More Slowing of Consumer Spending

Overview:

Retail sales for February disappointed with a total decline of 0.6% m/m. Although much of the weakness was driven by non-core components, there was further evidence that real consumer spending is slowing, as households are bowing to a wide range of strong headwinds.

Details:

The weakness in the February retail spending report was exaggerated somewhat by non-core factors. Firstly, the Commerce Department reported another decline in autos sales (subtracting 0.4pp) although the unit sales figures applied by the BEA for the national accounts showed a minor rise in February. Secondly, gasoline sales declined 1.0% (subtracting 0.1pp); they have now risen substantially again. That said, the report was weak even when excluding these factors. Core retail sales (i.e. excluding autos, building materials and gasoline) were flat at 0.0%. With soft readings in prior months as well, the report therefore provides evidence of a further slowing in underlying retail sales. The three-month annualised growth rate in core sales has slowed to 1.1% - the lowest since 2003.

The report included a downward revision of 0.3pp to total December sales, partly countered by a 0.1pp upward revision to January sales. In terms of real personal spending this will imply a minor downward revision to real consumer spending in Q4 from 1.9% q/q AR to 1.8% q/q AR. Contrarily, real personal spending in January will be revised up from 0.0% m/m to 0.1% m/m. For February the report implies rougly flat real personal spending. This implies that even with another flat reading in March real consumer spending will see an increase of ½% q/q AR in Q1.

Assessment & Outlook:

There is little doubt that US households are currently suffering. A whole range of negative factors including high inflation, declining assets prices, tighter credit and a softer labour market is restraining consumers further. The outlook for consumers remains problematic for next few months until the tax rebate begins to kick in during late Q2. Read more on the prospects for consumer spending in our recent research paper "Research US: Consumers under siege".

For the Fed, today's numbers emphasise that the economy is slowing. The markets are now almost fully discounting a 75bp cut in the Fed funds rate at the meeting next week. Our current forecast stands at 50bp, but we doubt that the Fed will dare to disappoint the markets. We will reconsider our call in the edition of Weekly Focus due out tomorrow.

No doubt! Consumer spending is slowing down




Danske Bank

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Posted in: Economy,Finance and Investment,Forex

U.S. Market Update

Dow -69 S&P -7.25 NASDAQ -12.3

Early on the eye seemed to have passed for the equity markets as storm clouds built again on re-energized fears in the financial stocks. Futures tumbled overnight after Carlyle Capital failed to reach an accord with lenders suggesting their remaining debt could soon enter default. Credit Suisse confirmed they have been selling some Carlyle assets adding to worries of a fire sale. BSC remains one of the market whipping boys losing another 15%+. XLF -2.5% Gold stocks are one group that is shinning after spot gold briefly traded above $1000 for the first time ever. NEM +3.7% ABX +4% GG +4% Select managed care names are seeing a bit of a dead cat bounce after being slammed over the last few sessions. UNH +4% WLP +2% HUM +10% Equity markets have recouped more than half their losses from yesterday's close after comments from S&P sent the markets rocketing higher. Traders look to be clinging to the ratings agency's call that an end of writedowns for the major financial institutions may now be in sight. Government officials including Treasury's Paulson and House Financial Services Chairman Frank are also introducing new legislation designed to curtail the housing and subsequent credit woes. Bond yields were under pressure early in the session as the risk aversion theme had returned, but as equities have found some traction Treasury prices have come off. The 10-year yield is holding below 3.45% while the 2-year stands at 1.53%. That April fed fund future contract sees better than 90% odds again of a 75 basis point cut while August sees nearly a 75% chance of a 1.75% fed funds rate. Crude remains extremely volatile after making a new high at $111 it has slipped back into negative territory.

The USD remains broadly weaker throughout the latter portion of the European session. Financial market turmoil continues to play havoc on central bank credibility and its ability to find a resolution to the growing credit situation. EUR/USD hit fresh all-time highs above 1.5625 after the Carlyle announcement. USD/CHF also hit life-time lows near parity at1.0040 and USD/JPY broke below the 100 level for the first time since November 1995. Record highs in both NYMEX front month crude futures and spot gold are keeping the USD on the defensive. The risk aversion theme is putting a bid in both JPY and CHF currencies, as carry-related pairs are unwound. As noted in Wed session, FX Dealer chatter continues to center on fixed-income hedge funds, which remain under stress despite recent Fed operations to improve liquidity conditions. Verbal intervention is growing among the central bankers as Trichet stated that central bankers are now “preoccupied” with excessive Forex moves. US Treasury's Paulson reiterated a strong USD is in the nation's interest. The SNB and Norway's central banks kept their interest rates steady as expected. Dealers now ponder when and if central banks will perform the rare task of coordinated intervention. Whatever the outcome, volatility will continue to be on the upper end of recent ranges for numerous currency pairs. Dealer chatter circulating that China may enact a "one-off" revaluation of its currency. Dealers note rumors circulating that China's PBoC may use the current USD weakness environment to enact a onetime revaluation of CNY by over 8% to a rate of 6.50 level from the USD/CNY rate of 7.10. Friday's tend to be the favorite day of implementing new policies. With Oil at all-time highs, FX dealers ponder if US would even consider opening the Strategic Petroleum Reserves (SPR) in an attempt to indirectly strengthen the USD.

Trade The News Staff
Trade The News, Inc.

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Posted in: Economy,Finance and Investment,Forex

No Spending = No Sales

So what else is new? The surprise isn't that the reading came in bad, but it actually was much lower than expected... THAT was the shock! The worse is obviously has yet to come as we will see more and more dreadfulness in the world's largest economy.

Starting off with the Retail Sales, the Commerce department released their report showing that retail sales fell 0.6% in the month of February compared to the 0.3% rise in January. Retail sales excluding automobiles sank 0.2% in February where the previous month recorded a rise of 0.3% as well.

Retail sales makes up about one-third of the gross domestic product and at this point, it seems that growth slowed down dramatically. But again this isn't much of a surprise since Mr. Donald Kohn previously testified that growth might be as much as zero this quarter. With words like that, confidence was definitely shaken and spending in the economy has slacked due to many reasons such as inclining food and energy prices and weaker income growth.

Further analyzing the components of the retail sales; the sales of durable goods were particularly weak in February while the sales of nondurable goods held up despite the drop in gasoline sales. Automobile sales plunged 1.9% marking the biggest drop since June but were down 4.2% compared with a year earlier.

Another report by the Labor Department concerning Import prices indicated that process of goods imported into the U.S. inclined at a slower pace of 0.2% in February. On an annual basis, import prices also rose 13.6%.

Prices for goods were on the rise as the dollar fell to new record lows against the Yen and the Euro as fears concerning the U.S. entering a state of recession and a possible stagflation piled up.

Imported petroleum prices dropped 1.5% where ironically, these same prices are up 60.9% over the year. Prices for imported natural gas soared 8.7% in February while non-petroleum prices inclined 0.6%. Imported capital goods climbed slightly by 0.1% in February.

On the exports side, the U.S. export prices climbed by 0.9% in February led by the jump in agricultural exports by 4.4%. Over the past year, the have increased 30.8%.

The only cheerful piece of information out today which is not quite that significant was the U.S. weekly initial jobless claims where it showed that the amount of people filing for first time aids in the week ending March 8 was the same at 353,000 from the previous revised reading. The four week average fell last week to 358,500 and continuing claims for benefits remained at its highest level since September 2005.

As for the inventories, U.S. businesses were able to get rid of their inventories in January as sales were faster than their stocks piled up. In relation to sales, inventory levels were at a record low at 1.25 times the monthly sales on a boost from high prices and gains made by wholesalers. Inventories rose 0.8% in January marking the largest rise since mid 2006.

Everyone is favoring a strong dollar... well why would you favor anything else??! A strong dollar is what is needed for the U.S. to ease inflationary pressures and hence bring down energy prices. So unless there's any other way to do that, don't pray for anything but a strong dollar!

But waiting for the dollar to strengthen might take some time especially that the effects of a 50-75 basis point cut next week has been locked into the markets ... dear reader, it's still going to be a while!

Crown Forex

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Posted in: Economy,Finance and Investment,Forex

U.S. Retail Sales Falter in February

- Retail sales slipped 0.6% M/M in February which was significantly worse than expected
- Excluding autos, retail sales fell 0.2% M/M and was also well below expectations
- Excluding autos and gas, retail sales fell 0.1%

Retail sales were much worse than expected in February, posting a 0.6% M/M drop. Excluding autos, retail sales were down 0.2% on the month. On a year ago basis, total retail sales are now up only 2.6%, while retail sales excluding autos posted a 4.4% Y/Y gain. Even more concerning is the fact that the three month trend in total retail sales is now down 3.3%, while excluding autos, the three month trend is down 0.8%. Both are well off their recent peaks. These soft numbers are telling in that they indicate momentum in retailing activity and suggest that consumer activity is becoming increasingly fatigued.

It is clear that the housing market continues to exert a big drag on consumer activity. Building materials were down 0.7% on the month, while furniture and electronics fell 0.5% and 0.4%, respectively. The deterioration in these categories comes as little surprise and should continue as the housing market continues to correct.

Other sectors that posted declines aside from the 0.2% decline in autos were food and beverage sales which were down 0.2%. A number of commodities are posting new highs or at least continue to see price gains. As such, food prices continue to rise across the globe and this could be acting as a drag.

There were, however, a small handful of categories to post gains. They included health and personal care (+0.5%), clothing and accessories (+0.2%), and general merchandise (+0.4%). But in light of the confluence of categories that posted large declines, these modest increases do little to offset the deterioration in overall retailing activity in February.

On balance, this report is troubling. It suggests that the consumer is feeling the pinch of a softening job market, higher prices for key goods, and the other macro economic headwinds that currently weigh on the U.S. economy. The fact that the consumer can no longer depend on the housing wealth effect and job growth is slowing is a bad combination for retailing activity and suggests that consumption, which is the largest component of GDP is increasingly at risk.

TD Bank Financial Group

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Posted in: Economy,Finance and Investment,Forex

U.S. Retail Sales Surprise on the Downside in February

In February, U.S. retail sales dropped 0.6%, contrary to market expectations calling for a 0.2% rise. This followed an upwardly revised 0.4% gain in January (previous: 0.3%). Excluding autos, retail sales dropped by 0.2%, which was contrary to market forecasts for a 0.2% gain.

In February, the weakness in retail sales was fairly broad based with only health/personal care stores, clothing and accessories stores, sporting goods stores and general merchandise stores posting gains. Housing related sales were all down. Sales at furniture/home furnishing stores dropped 0.5%, sales at electronics/appliances stores fell 0.4% while sales at building material and garden supply stores declined 0.7%. A decline in gasoline prices contributed to a 1.0% drop in sales at gasoline stations. On a year-over-year basis, retail sales were up 2.6%, the weakest pace of growth since January 2007. The component that feeds into the GDP addup, retail sales excluding automotive and building material and garden supply stores, dropped 0.2% though this was after an upwardly revised 0.6% gain in January. Relative to its Q4 average, sales excluding autos/building materials/garden supply stores were up an annualized 3.1%

With an increase in consumer prices in February probable, today's drop in retail sales implies that they were sharply negative on a real basis. Combined with the weak real consumer spending figures in January, today's data points to markedly slower consumer spending in Q1, consistent with our forecast for spending to basically stall over the January/March period. In fact, over the first six months half of the year, consumer spending is likely to be subdued. The arrival of the fiscal stimulus package will probably boost spending, though likely more so in the second half of 2008.

In a separate report, initial jobless claims for the week ending March 8th were released. They were unchanged at 353,000. The week prior, they were slightly upwardly revised to 353,000 from 351,000. The less volatile four-week moving average dropped to 358,500 from an upwardly revised 359,750 (previous: 359,500).

Tomorrow in Canada

Q4 Productivity figures will be released tomorrow. A deceleration in GDP growth coupled with an increase in hours worked points to declining productivity in Q4 after four straight quarterly increases. For all of 2007, productivity was likely up a paltry 0.8%, the weakest pace of growth since 2004. The further weakness in GDP growth will likely see productivity remain subdued over the first half of the year.

RBC Financial Group

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Posted in: Economy,Finance and Investment,Forex

U.S. Consumers Curb Spending, Due To Record Oil Prices

U.S. retail sales unexpectedly fell 0.6% in February, recording only the second drop in eight months supporting fears that the U.S is already in a contraction. Looking deeper into the breakdown, we see that six out of the ten major components declined, led by a 1.9% reduction in automobile sales. Additionally, despite record prices, gasoline and food sales were lower, suggesting that consumers are starting to cut back in those areas. Also, a decline in building materials suggests that the housing industry will continue to negatively affect the economy. Overall, discretionary spending was lower as recession concerns are starting to weigh on the American consumer. The weakening job market, tight credit markets and declining consumer confidence are increasing the downside risk to the economy and weighing on future growth.

DailyFX

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Posted in: Economy,Finance and Investment,Forex

Euro Breaks 1.55, Where Is it Headed Next?

- Will Consumer Spending Crush the US Dollar?
- Australian and New Zealand Dollars in Play

Euro Breaks 1.55, Where Is it Headed Next?

What makes today's record breaking day in the EUR/USD particularly unique is the fact that the currency pair is now trading above the psychologically important 1.55 level. Data wise, its been a quiet day in the currency market, but comments from European officials, the continual rise in oil prices, a drop in US credit spending and widening credit spreads have all contributed to the Euro's rise. At the ECB's meeting with the Gulf Cooperation Council today, Trichet was asked whether the Euro's move was brutal. He repeated that he was concerned about excessive moves on the exchange rate, but at the same time, he warned that it is 'very important' for the ECB to continue to 'inspire confidence by solidly anchoring inflation expectations.' Once again, inflation is the central bank's top focus and they will not be willing to compromise their priority. In other words, do not expect the ECB to stop the Euro's rise anytime soon and for this reason, we could easily see a move above 1.56, which is the wave 5 objective of our technical analyst Jamie Saettele. From a fundamental perspective, Eurozone economic data continues to surprise to the upside. This morning, we learned that Eurozone industrial production rose 0.9 percent in the month of January. French current account, non-farm payrolls and Italian consumer prices are due for release tomorrow along with the ECB monthly report. These numbers are generally not market moving but the US retail sales report will have a big impact on the EUR/USD. If consumer spending is weak, like we expect, 1.57 could be an achievable target. Meanwhile the Swiss National Bank has an interest rate announcement scheduled for tomorrow. The earliest that they are expected to cut interest rates is in the fourth quarter.

Will Consumer Spending Crush the US Dollar?

The US dollar fell to a record low against the Euro today and is within pips of closing in on its 8 year low against the Japanese Yen. The latest move in the currency and bond markets suggest that traders are suspicious of whether the Fed's action yesterday will have a lasting impact on the financial markets. Rate cut expectations have also rebounded with the market now pricing in a 74 percent chance of a 75bp rate cut next week, up from a 62 percent chance yesterday. How much the Fed actually eases will be largely dependent upon tomorrow's retail sales report. With US corporations cutting jobs two months in a row and foreclosures rising, consumer spending will certainly suffer. According to MasterCard's data, spending In the month of February dropped 1.1 percent, their largest decline in 5 years, when they first started tracking the data. However, the absolute value of retail sales could increase because gasoline and food prices are on the rise. It is therefore important that traders watch not only the headline numbers, but also the details of the consumer spending report. Don't forget that import prices will be released at the same time as retail sales. Prices are expected to rise but it should only have a limited impact on the US dollar. The bigger market mover is undoubtedly the retail sales report. Meanwhile, at the Gulf Cooperation Council, Qatar confirmed that they will be keeping their US dollar peg while the Saudi Monetary Authority called the US dollar a good buy. An article in the Wall Street Journal today talks about the degree of Middle Eastern investment into the US real estate market. With the dollar continuing to fall, these investments could pick up pace, providing support for the ailing housing market.

Australian and New Zealand Dollars in Play

The Australian and New Zealand dollars will be in play tonight with the Australian employment report and New Zealand retail sales due for release. After two strong months of job growth, we expect the labor market to slow materially especially after Westpac reported that consumer confidence fell to the lowest level in 15 years. As for New Zealand, stronger credit card spending points to stronger retail sales. Meanwhile the Canadian dollar has also gained strength against the greenback thanks to surprisingly good economic data earlier this week and the continual rise in oil prices. We are closing in on $110 a barrel and as long as the US dollar continues to fall, oil prices will continue to rise. Canadian capacity utilization is due for release tomorrow, but that should not have any meaningful impact on the CAD

British Pound Hits 2 Month High

The British pound rallied 230 pips to a 2 month high against the US dollar today. As we expected, the trade deficit narrowed in the month of January as the weakness of the sterling against the British pound drove up the volume of good sold to EU countries. The pound weakened against the Euro which tells us that the move in the GBP/USD may be due just as much to the strength of the British pound as the weakness of the US dollar. EUR/GBP on the other hand continues to gain strength as the monetary policy and economic data of the Eurozone come in stark contrast to the US and UK

Japanese Yen Recovers on Stronger GDP

The Japanese Yen is trading within pips of its 8 year high against the US dollar. GDP growth in the fourth quarter was revised up from 0.6 to 0.8 percent, due largely to an upward revision to inventory investment. The Corporate Goods Price Index was also stronger than expected. In fact, the pace of growth was the fastest since 1981. However the current account surplus and confidence fell short of expectations as the strength of the Yen and weakness of the US dollar weighs on exports. This mixed bag of Japanese economic data gives us little indication on the impact that the US slowdown is having on the Japanese economy to date.

DailyFX

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Posted in: Economy,Finance and Investment,Forex

Foreign Exchange Market Daily Update

The US dollar fell across the board and reached a new all-time low against the euro on speculation the Federal Reserve's plan to provide funds to banks won't be enough to ease a global credit crunch. Traders bet the Fed will cut rates by as much as 75 basis points on March 18th at the next FOMC meeting, while the European Central Bank keeps borrowing costs unchanged.

The euro soared to a record high against the US dollar as strong euro zone economic data renewed focus on European and US interest rates. The euro extended gains following a European Union report showing industrial production in the region increased for the first time in three months in January, rising 0.9 percent from the prior month. Euro zone finance ministers remain extremely vigilant on foreign exchange rates and Luxembourg Finance Minister Jean-Claude Juncker said the ECB has no reason to follow the US in slashing interest rates.

Sterling steadied overnight as UK growth remains resilient, even though England's economy is facing particular difficulties. The UK should be better positioned than the US to deal with the economy's turmoil and chances of a recession in England seem unlikely in the near term.

The Japanese yen rose overnight after Japan's economy grew faster than expected in the fourth quarter. A revised Japanese government report showed gross domestic product expanded an annualized 3.5%. Asian stocks also rose the most in two weeks, extending a global rally, after the US Federal Reserve said yesterday that it will pump as much as $200 billion into the financial system.

The Canadian dollar gained against the greenback supported by record oil prices once again. Stock markets have played an important role in the loonie's performance this year as they are used as a gauge for the health of the US economy, which takes the bulk of Canada's exports.

The Australian and New Zealand dollars remain buoyant, reinforced by rising commodity prices and improved appetite for riskier assets and higher-yielding currencies.

Union Bank of California
The Bank of Tokyo-Mitsubishi Group

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Posted in: Economy,Finance and Investment,Forex

U.S. Market Update

Dow +120 S&P +10.4 NASDAQ +23.4

Equity markets are following through to the upside as the momentum continues from yesterday's 3%+ rally for the major indices. Futures are making new highs late in the New York morning. Financial stocks have found some real traction at least temporarily from yesterday's Fed announcement, and look to post solid gains again led by the investment bank/broker dealers. BSC is up 6% after the CEO appeared on CNBC before the open reassuring investors that there is no truth to the rumors that have been circulating the past few sessions. GS +3% LEH +3% XLF +2.5% Humana -12% slashed guidance keeping the pressure on the stock. The energy complex is the notable laggard as sellers have stepped after weekly crude inventories rose by more than 6M barrels. April crude is lower by 1% but the bullish sentiment is tough to break as it still trades near all-time highs. Gasoline and Heating oil are off 1% as well. Treasury prices are marginally higher but the action there is fairly subdued. Prices did firm ahead of the open of floor trade on renewed rumors around the globe of multiple hedgefunds being in trouble. Metals futures are hovering close to the unchanged market as most of the action appears to be in the equity markets.

Fixed-income markets continued to focus on the stress generated from global liquidity concerns. Dealers noted that the hedge fund community remained under considerable strain as banks continue to demand higher levels of collateral, while customer redemption requests continue to stream in despite recent central bank operations to improve liquidity conditions. The WSJ confirmed earlier market rumors that NY based Drake Capital, a $10B fund, received withdrawal notices from half of its investors. Also problems at Dutch fund GO Capital resurfaced as rumors circulated that the Co. has halted redemptions. Thus, the euphoria the USD managed to generate from the central bank led liquidity operation on Tuesday seemed to be slowly evaporating. The USD is also weighed down by continued elevated commodity prices. Front month NYMEX crude continues to probe the 109 area throughout the US morning, while spot gold remains in striking distance of breaking the $1,000 level. Global inflationary fears are hampering any follow through USD buying. UAE Economic Min noted that changing USD peg may ease the country's inflation and stresses that the USD's fate remains in foreign hands. The EUR/USD briefly tested the 1.5500 level before option-related selling stalled the Euros upside momentum. Dealers note that Mid-East demand for Euros has been 'aggressive' over the last 48 hours. The June GILT contract aggressively sold off after the DMO announced its planned FY 2008-09 Gilts sales at £80B v £59Be. Gilts are off 57 ticks at 110.68, June Bunds are firmer by 5 ticks at 117.51 European Equities are in the middle of their session trading range. Euro Stoxx 50 +1.35 at 3,654, FTSE 100 +1.45 at 5,772, CAC 40 +1.5% at 4,700 and DAX +1.3% at 6,609

Trade The News Staff
Trade The News, Inc.

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Posted in: Economy,Finance and Investment,Forex

Inflation Threats...

Yesterday's action that was announced by the Feds to provide funds up to $200 billion in Term Securities Lending Facility (TSLF) to primary dealers had its immediate effect on the financial markets.

Investors increased their carry trades bets, while providing the U.S Dollar at the same time with the strength to incline against major currencies…

A disappointing fact though an expected reaction, after the surprise effect did the desired effects on the financial markets, investors and economists both were skeptical over the worthy of such action, as they were still betting the Feds will lower their interest rates by at least 1/2 percentage point next week…

The Dollar dropped back again against majors, the Euro inclined even further against the USD today after the upbeat news from the EU industrial sector, the industrial production rose 0.9 percent in January from a revised flat reading in December, while compared with a year earlier production rose in the 15-nation economy to 3.8%, both readings were better than median estimates, this rise marked the first in three months supported mainly by increased output from Germany the EU largest economy…

The U.K on the other hand released their trade balance for the month of January, the visible trade deficit which measures the trade of goods only was unchanged from December's deficit of ?7.50 billion, while the trade deficit with Non-EU widened to ?4.29 billion. Total exports rose 6.3% to ?19.9 billion, while total imports rose 4.4% to ?27.5 billion; both rises were due to rising food and energy prices, highlighting the BOE concerns over rising inflation as the contribution of the Pound's low value to exports was offset by rising imports' costs.

The economical outlook for both the EU and the U.K economies remain relatively strong when compared to their American counterparts, yet rising inflation remains a major threat to both, the ECB established their stance to be Hawkish, while the BOE are yet to find out the extent of slowing in economical activity.

Both the ECB and the BOE maintained their interest rates steady at 4.00% and 5.25% respectively, but both are experiencing increased uncertainties to their economical outlook, should both find their way through this mess, we can all put our eyes to sleep since they along with China can take the burden of global growth from the United States till the Feds are able to march their economy into safe shores…

Crown Forex

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Posted in: Economy,Finance and Investment,Forex

Fed Looks To Prevent Meltdown

The Fed moves will alleviate immediate downward pressure on the dollar, but underlying fears will continue.

The yen weakened sharply in US trading on Tuesday following the Fed's move to boost liquidity. Risk aversion has eased, at least temporarily, which triggered a recovery in high-yield currencies and triggered stop-loss yen selling. The Japanese currency weakened to 103.40 which eased immediate speculation over a dollar decline to the 100 level.

Domestically, the fourth-quarter GDP growth estimate was confirmed at 0.9%, which provided some relief, but the forward-looking data was less supportive. Consumer confidence was at a 5-year low while the Bank of Japan warned over downside risks to the economy. The government's Bank of Japan Governor nominee Muto has been vetoed by the Upper House of parliament which will unsettle the yen to some extent, especially with current governor Fukui due to leave office next week.

The increase in global stock markets lessened immediate yen demand, but there was evidence of increased exporter selling and the US currency was testing the 103.0 level in early Europe on Wednesday. Underlying risk aversion is also likely to remain at elevated levels which will curb yen selling pressure.

Investica

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Posted in: Economy,Finance and Investment,Forex

UK Trade Gap Narrows Further

The UK's trade deficit narrowed for the second consecutive month in January, printing at -4.1 billion pounds versus the expected -4.6 billion. The gap reached as wide as -4.7 billion pounds in the third quarter of last year. Since then, the sterling has lost 12% of its value against the Euro and 4% against the US dollar. This has served as a catalyst of the British export sector - volumes of goods sent to EU countries rose 5% while those sent to non-EU countries rose 7.1% in January.

From a long term perspective, the trade deficit is bearish for the pound, creating a net outflow of money out of the UK and cheapening the sterling by making it more abundant in the global marketplace. This serves to boost exports by raising the purchasing power of foreigners all the while cutting imports by reducing the purchasing power of domestic consumers. The BOE hopes for just such a re-balancing - a slowdown would allow the central bank to avoid raising interest rates further and potentially crushing the economy to meet their inflation target in the face of rising input costs worldwide.

DailyFX

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Posted in: Economy,Finance and Investment,Forex

Consumer Sentiment Collapses

The Westpac-Melbourne Institute Index of Consumer Sentiment fell by 9.1% in March from 97.4 in February to 88.6 in March.

This is an extraordinarily large fall. Even though the 9.1% fall is around the 3 year average (9.4%) fall in the Index following a rate hike by the Reserve Bank, this fall has come from a lower base and pushes the Index to its lowest level since September 1993.

The decline over the last three months (23.9 points or 21.2%) is the sharpest three month decline since the Index was first measured in January 1975. There were many other periods during that time when the Reserve Bank did consecutive rate hikes so this result cannot just be attributed to the shock effect of consecutive moves.

The current credit crisis, which is pushing mortgage and other retail lending rates even higher than the rises associated with the Reserve Bank, has also precipitated the biggest (23.3%) fall in the share market since the recession in 1990-91.

In any rate hike cycle there will be one move (usually the last) when the effect is substantially greater than the effect of any previous move. We saw that in both December 1994 and August 2000 when the previous tightening cycles came to an end. This result points to a similar effect for the March move and probably signals that the Reserve Bank has tightened for the last time in this long cycle which began in May 2002.

Predictably, the confidence of the respondents who hold a mortgage fell by a spectacular 12.1%, to be 31.5% down over the year compared to the overall index which is down by 23.3%.

Gloom over the increases in interest rates has probably been compounded by additional mortgage rate increases by lenders and speculation that there is more to come. Confidence on issues such as employment; inflation; international conditions and overall economic conditions has collapsed relative to a year ago.

All components of the Index were down sharply. The assessment of family finances compared to a year ago fell by 15.6%, while opinions on whether now is a good time to buy a major household item fell by 10.9%. Expectations for family finances over the next 12 months fell by 8%. The outlook for economic conditions over the next 12 months was down by 5.6% and the 5 year outlook also fell by 5.6%.

Households have dramatically changed their attitudes about where to save. The proportion of respondents choosing shares fell by 6.7 percentage points to 7.9% from 14.6% in December. This reading is well below levels seen in the aftermath of the dot-com bubble burst in 2001, and clearly the lowest on record for this series which commenced in 1995. Real estate was also unpopular. The proportion choosing real estate as the wisest place for savings fell by 3.7 percentage points from 21.1% to 17.5%. Households now clearly favour banks (up 2.4 percentage points to 24.7%) and paying down debt (up 8.4 percentage points from 12.9% to 21.3%).

Spending plans have also become much more conservative. The Index on whether now is a good time to buy a dwelling fell by 11.4% since December, to 71.8 the lowest since the housing boom faltered in late 2003 and the second lowest since the question was first included in 1995. Intentions towards motor vehicles have soured. The Index of whether it is a good time to buy a car fell by 22.5% since December to the lowest level since the question was first included in 1995, and 28.3% below the average level over the last 10 years.

The results from this Survey are very important. They indicate that the Reserve Bank's last rate hike, combined with further independent moves from the mortgage lenders may have finally slowed demand such that inflationary pressures will ease. As discussed, the last rate hike in a cycle will generally have a much bigger effect than the moves that preceded it. The rate hike in March 2008 appears to fit that profile. The Governor of the Reserve Bank opined in his last Statement that the March move may have been enough to sufficiently slow demand in the economy. The evidence from the Consumer Sentiment Index is that he is probably correct.

Recent further adverse developments in credit markets indicate that retail interest rates including mortgage rates could well rise further without any further action from the Reserve Bank. This development takes even more pressure off the Bank to raise its rates.

As such, we do not expect that the Bank will raise rates again in the cycle. However, inflation will remain uncomfortably high and generous tax cuts later this year are likely to significantly boost households. Interest rates are now likely to stay around these relatively high levels until the Bank feels confident that inflation pressures have eased significantly.

That is not expected to occur before the second half of 2009 at the earliest.

Westpac Institutional Bank

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Posted in: Economy,Finance and Investment,Forex

Japanese GDP Surprises to the Upside

Japan's economy expanded at an annualized rate of 3.5% in the final quarter of 2007, surpassing economists' expectations of 2.3%. Yen appreciation notwithstanding, export growth proved to be an important catalyst for growth. The result validated a report released by the Bank of Japan last week that argued the economy was supported in spite of US slowdown and rising input prices, suggesting demand from emerging markets (notably China) will continue to offer substantial stimulus.

Today's result will moderate calls for the BOJ to lower interest rates, which is for the better considering the bank lacks clear leadership at present. As we reported last week, Governor Toshihiko Fukui is set to step down on March 19th. The candidacy of his would-be replacement and current deputy Toshiro Muto has been blocked by the Democratic Party of Japan (DPJ) that controls the upper house of the Diet (Japan's parliament). Critics alleged that Muto's 37 years with the Ministry of Finance far outweigh his 5 years with the BOJ, questioning whether the central bank can truly retail its independence under his leadership.

DailyFX

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Posted in: Economy,Finance and Investment,Forex

U.S. Market Update

Dow +217 S&P +22.5 NASDAQ +43.8

Equity markets around the world surged after the Fed announced various new lending tools that would allow them to lend up to $200B to primary dealers. Financials were the major beneficiary led by names related the mortgage market, but most stocks are well off of opening levels. FNM +5% FRE +6% C +5.8% WFC +5.5% WM +8% MS +7% GS +4% Bear Stearns has slide into negative territory as the stock seems unable to shake the recent worries surrounding it. Home builders are seeing a decent relief rally as well. XHB +2.5% Managed Care stocks need an IV after WLP hacked Q1 guidance following yesterday's close. WLP -26% UNH -10% AET -11% CI -12% HUM -20% Texas Instruments is losing ground after lowering Q1 guidance as well. U.S. yields have pushed dramatically higher following the Fed announcement with intense selling in the 2-year flattening the yield curve noticeably. The 2-year yield has climbed some 25 basis points in 24 hours to 1.70% while the 10-year hovers around 3.60%. Some of the most aggressive Fed expectations in terms of future rate cuts have lost steam. The April fed fund future projects roughly 70% odds of a 75 basis point cut where that had been fully priced in ahead of the announcement. The August contract now sees less than 50% odds of a 1.75% fed funds rate this summer where it had seen better than 90% odds yesterday. Crude made new all-time highs again overnight above the $109 handle but has since backed off back below $108 as the Greenback has firmed on the Fed announcement and higher U.S. yields. Metals markets are off of overnight highs as well but still generally posting small gains.

The USD staged a rally against the major currency pairs following the FED's announcement of new lending tools to boost liquidity and help the markets to 'function'.

The actions announced today supplement the measures announced by the FED last Friday to increase the size of the Term Auction Facility to $100B and to undertake a series of term repurchase transactions that will cumulate to $10B. EUR/USD tested a fresh all-time high of 1.5496 helped by rhetoric from the ECB's ultra-hawkish member Weber, before chatter of a 1.55 option barrier contained the upside momentum. The USD was also aided by a slight improvement in its Jan trade balance from consensus expectations to a -$58.2B reading. The USD was able to eek out its best level since the US payroll report from last Friday as stops were elected below the 1.5300 level. For the most part, the USD remains locked within its 7-day trading range, despite the recent central bank liquidity operations. Dealers note that the risk of a coordinated currency intervention is more likely on USD strength rather than weakness. The 1.4970 level would be a level to keep in mind in the EUR/USD pair and 153.30 in EUR/JPY. JPY was weaker on speculation that the Fed was forced to consider more innovative response as continued strains in credit markets threatening to deepen and prolong an incipient US recession. Thus the liquidity measures announced help to reverse the scenario of risk aversion for the time being. USD/JPY trades up180 pips at 103.25; EUR/JPY has added 250 pips at 158.20. Commodity currencies are holding steady despite oil and gold are off of pre-US opening highs. European equity markets are up 2% across the board. June Bunds are down -65 ticks at 117.40 and June Gilts at 111.23 are off 63 ticks.

Trade The News Staff
Trade The News, Inc.

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Posted in: Economy,Finance and Investment,Forex

Foreign Exchange Market Daily Update

The US dollar rose sharply to three month highs against the yen and rebounded from a record low versus the euro after the Federal Reserve announced it will inject liquidity into the financial system, easing the market’s anxiety over a deepening credit crisis and US recession. The Fed said it will hold auctions to lend as much as $200 billion in Treasuries and increase swap lines with the European Central Bank and the Swiss National Bank. Central banks coordinating actions to address the liquidity issue in the market is helping to stabilize the markets and aiding the US dollar recovery. As a result, the Dow Jones gained over 2.0% this morning and traders trimmed bets the Fed will slash its benchmark rate as much as 75 basis points this month.

The euro weakened against the US dollar after hitting record highs overnight, as traders speculated the steps will help ease a credit crisis that is threatening to tip the U.S. economy into a recession. The euro rose to a record against the dollar earlier after an industry report showed investor confidence in Germany unexpectedly improved this month, adding to evidence Europe's largest economy may weather a U.S. slowdown.

Sterling fell from three-month highs after a UK house price measure fell to its lowest since the market crashed in 1990, supporting the case for further interest rate cuts. In other news this morning, separate data from the British Retail Consortium showed retail sales growing at a modest pace last month, as consumer spending tightened, adding more pressure to the British pound.

The Japanese yen fell over 1.4% versus the US dollar as central banks synchronized efforts to assist global liquidity issues. However, the yen will continue to remain firm and the Nikkei 225 index rose 1.0% overnight.

The Canadian dollar gained against the greenback supported by record oil prices, strong domestic data, and a coordinated move by central banks to help ease credit strains. The Bank of Canada said it was ready to pump CAD $4 billion into the market and domestic data showed Canada’s trade surplus widened in January on a surge in exports.

The Australian and New Zealand dollars remain buoyant, reinforced by rising commodity prices and improved appetite for riskier assets and higher-yielding currencies.

Union Bank of California
The Bank of Tokyo-Mitsubishi Group

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Posted in: Economy,Finance and Investment,Forex

Forces REUNITE!

A surprise intervention by the Fed's to help pull the economy out of a recession and a narrowed trade balance all in the same day?! Wow this seems like a bright day for the Americans but will they be able to enjoy it while it lasts... or will it fail like previous plans?

Teeing off with the trade balance, it seems that the gap for the month of January actually widened as oil prices rose to set new records. The deficit increased by 0.6% to $58.20 billion after December's reading was revised downwards to $57.86 billion according to the Commerce Department.

Of course the positive effect of the weak dollar was the boost in exports by 1.6 percent to $148.23 billion from $145.86 billion marking the largest climb in six months. The poor dollar performance wasn't the sole contributor to this rise, but the expansion and growth of trading partners also played a major role.

Sales of Consumer goods abroad, such as pharmaceutical preparations, increased by $489 million while industrial supplies; such as chemicals and steel mill products, also climbed $804 million. Food, feed, and beverages also went up by $601 million.

The funny thing is that imports also continued to increase despite the slowdown in the U.S. economy which is slowly turning into a recession. The purchase of foreign goods and services rose by 1.3% to $206.43 billion from $203.72 billion.

Oil imports in January were up to $27.09 billion from $24.90 billion and the reason is crystal clear. With oil reaching the $109.00 per barrel level, we might see more spending in the U.S. bill for crude oil imports. As for all other energy related imports, the U.S. paid $35.84 billion up from $32.39 billion. Food and feed imports also rose $324 million.

But now to the moment that you all have been waiting for... the JOINT INTERVENTION! We have seen a similar act in December 2007 as the G-10 central banks pumped money into the financial system to ease the liquidity and ease the credit crunch.

However this time it was different... today the Bank of Canada, The bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank all joined hands to take desperate measures to help the world's largest economy from sinking further.

It went as follows... the Feds announced today a new Term Securities Lending Facility (TSLF) where they will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days opposing the previous overnight term. The primary dealers are a group of 20 banks and securities firms that trade Treasuries directly with the Federal Reserve Bank of New York. These securities are backed by federal agency residential-mortgage-backed securities and non-agency private label residential mortgage backed securities. The TSLF's primary intent is to promote liquidity in the financial markets and ease any credit market turmoil. Similar to the current securities lending program, securities will be available through auctions which will be held on a weekly basis beginning March 27, 2008.

But wait, it doesn't just end here dear reader! In addition, the Feds also authorized an increase in its existing swap lines with the ECB up to $30 billion and the Swiss National Bank up to $6 billion. These swap lines have been extended through September 30, 2008.

The ECB said it will lend banks in Europe up to $15 billion for 28 days as the SNB announced up to $6 billion. The Bank of Canada plans to purchase $4 billion of securities while the BoE will offer $20 billion of three-month loans on March 18 and hold a further auction on April 15.

After this quick act by the Feds, bets placed on a 1 percentage point cut in interest rates by the Feds have been removed and they were back down to only a cut by 75 basis points.

Speculations that the Feds were to act upon the turbulence in the markets and in an attempt to save the U.S. economy from a recession was reflected in the Asian stock markets as most of the indices climbed. The Dollar gathered momentum to gain against all the majors after the announcement of the TSLF.

Desperate measures are taken and honestly... I salute you! The Feds are not giving up on the economy and they're trying many things simultaneously. The Feds meeting is a week from today where expectations of a rate cut is awaited. With all the efforts combined and the joining of hands will the forces of the world be strong enough to put a floor under the sinking dollar?

Dear reader, the upcoming period is going to be one bumpy ride so strap your seat belts and hold on tight...

Crown Forex

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Posted in: Economy,Finance and Investment,Forex

Central Banks in Panic Mode, Dollar Sells Off, Fed to Auction up to $200 Billion

The US dollar skyrocketed this morning after the Federal Reserve announced auctions to lend as much as $200 billion in US Treasuries. This is a coordinated operation in conjunction with the European Central Bank, the Swiss National Bank and the Bank of England. According to the statement published on the website of all 4 central banks,

"Since the co-ordinated actions taken in December, the G-10 central banks have continued to work together closely and to consult regularly on liquidity pressures in the funding markets,"

"We all continue to work together and will take appropriate steps to address these liquidity pressures."

The Fed has increased its swap lines with the ECB and SNB. The Bank of England also announced that it is extending its 3 month loan program. The Fed is now willing to accept a wider range of collateral including federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS. These loans will be available for 28-days which make them more generous than the overnight loans offered under the current program.

Today's announcement comes minutes after the trade balance report indicates that the Fed is in panic mode. Their prior actions have only lasted for a few days at best and with each announcement, they are stepping up the ante. Unfortunately as much as they try, banks are still reluctant to lend money, which will hinder their efforts.

Expect the dollar to continue to benefit from this announcement, but the rebound may not last long because this action allows Bernanke to replace a 75bp rate cut with a 50bp cut.

Stocks are up, risk aversion is subsiding, carry trades should rally.

DailyFX

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Posted in: Economy,Finance and Investment,Forex

US Dollar Rallies as Fed Announces Measures to Address Liquidity Pressures

US Trade Deficit Widens Less Than Expected

The US trade deficit widened less than expected in January to -$58.2 billion, a 0.6 percent increase from December, as exports grew 1.6 percent while the US dollar plunged towards record lows. Meanwhile, imports gained 1.3 percent from the month prior, led primarily by a 10.4 percent surge in crude oil. However, imports of consumer goods declined 4.3 percent, indicating that households are tightening their purse strings.

The US dollar and carry trades are rallying significantly, but it is primarily the result of an announcement by the Federal Reserve that said they will expand their securities lending program. Furthermore, the FOMC authorized increases in its swap lines with the European Central Bank and the Swiss National Bank of up to $30 billion and $6 billion, respectively. The news bodes well for US equities today, as well as the greenback. For the full text of the Federal Reserve's announcement, click here.

DailyFX

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Posted in: Economy,Finance and Investment,Forex

EU on FIRE!!!

In times of turbulence and high volatility businesses and consumers' sentiment account for much, as their perception to the extent of imbalance let's say or deterioration, if seen as worse than current conditions, lead to an actual state of further damage in the future as they tend to now foreshadow their collaborative efforts to lead any economy to its doom.

The extent of downside effect the financial turbulence, US recession, and global growth slowdown is still to be measured upon the European Union; and as ECB's Trichet expressed is still within unusual high uncertainties. After steady rates in the euro zone the ECB remained hawkish and did not much project further slowing in economic growth, despite downgrading initial projection. Nevertheless since Germany withholds the highest portion in the 15 nations' GDP news are rather pleasant from there and form the entire euro boarders.

Euro Zone's single currency responded rather very well to today's ZEW sentiment indicators as they all came well above median estimates and improved in March, providing some sort of salvation to worried investors that the euro is now still on its upside journey as the sentiment is providing further resilience despite aching fears of this current rapid appreciation to the single currency that might be considered as an impediment for growth, yet seems that wont stop the Europeans at the time.

The euro managed to surge against the dollar at the time of the release as the euro set a fresh record at 1.5494 approaching $1.55, since the start of the European session the euro resisted its Asian trading range that was consolidating at low levels with downside bias, yet as the pair failed to progress below 1.5330s the downside correction for the day was canceled as the pair reclaimed the upside wave to set new targets after consolidating since yesterday to gather momentum.

Meanwhile on the British front, the CML housing loans data didn't do much to stop the pound from gaining yesterday's losses against the dollar, the data was rather discarded as it carried what markets saw overdue January figures which were already were canceled among the current strong sterling bullish sentiment. After the pound reached to as low as 2.0030s yesterday which resides near 100 days MA acquiring the pound with upside volume to reclaim the upside wave today to test the resistance level were the pound set it European high near 2.0210s and currently trades near 2.0180s.

The Japanese yen has lost its spark today as the equity markets revival works as always inversely with the yen. Japans currency weakened against majors today as the risk appetite has strengthened providing majors like the Euro and the Pound with more upside momentum as their gains were not just against the dollar, while the reclaim their losses against the yen and rise with strong volume. Against the dollar the yen has been falling taking the pair to the upside from the low opening levels at 101.40s to reach strong resistance levels as the pair could progress above 102.26. While against the Euro and Sterling the yens losses were more massive as the pairs rose to set their highs at the hour of this report of 155.57 and 203.58 respectively and are still on the rise.

In the US session we are waiting for January's trade balance data as the deficit is expected to widen despite the depreciation dollar, which of no surprise will be the result of surging oil prices. Imports have definitely slowed in the US as consumption and expenditure are slowing, while China's trade balance already gave us some hints, while as for exports that have been gaining on the back of a weak greenback seemingly didn't contribute as much as policy makers hoped in order to add to the final GDP, for we saw breadline slowing in the manufacturing sector and we noticed falling export orders. The previous assumed likelihood of strong export sector to salvage some growth in the US is not the case this first quarter. This still is adding to the ongoing sentiment which is definite more rate cuts in by the feds meaning further dollar selling!!!

Crown Forex

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Posted in: Economy,Finance and Investment,Forex

Weak UK Housing Data

The weak UK housing data will reinforce fears over consumer spending trends and limit the scope for Sterling gains in the short term.

Sterling temporarily strengthened through the 0.76 level against the Euro on Monday before retreating to 0.7635. The UK currency also failed to hold levels above 2.02 against the dollar with a correction back to 2.01.

The data overnight on Tuesday was weaker than expected with the RICS index of house price trends weakening to an 18-year low of -64.1% in February from -54.7% the previous month. The British Retail Consortium (BRC) reported that like-for-like retail sales growth dipped to 1.5% for February from 2.6% the previous month. Activity in the housing sector was low which will lessen the immediate impact, but the weak data will reinforce economic fears and limit Sterling buying support.

Sterling was below 2.01 against the dollar in early Europe on Tuesday before rallying strongly again as the US currency came under selling pressure. The UK currency was slightly weaker against the Euro.

The Wednesday annual government budget should not have a major impact, but a sharp downward revision to growth forecasts would tend to undermine confidence.

Investica

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Posted in: Economy,Finance and Investment,Forex

Trichet Shows Unease With Euro Strength But Gets No Official G10 Support

Sunrise Market Commentary

- US Treasuries surge higher on rumour mill
Treasuries got a further boost on rumours about liquidity problems at Bear Stearn that was denied later on and lower equities. However, overnight large chunk of the gains were erased, as Asian equities moved higher. Equities and credit market events key factor for trading today. New high on June Note future needs confirmation.
- Rising tensions on the European money markets
Yesterday, the Schatz, Bobl and Bund futures all set new contract highs. For now, we remain bullish on the outlook for European bonds and would use dips towards the 117.24 level to add to long positions, as the reluctance of the ECB to cut rates will fuel the idea the ECB is falling behind the curve and will have to do more afterwards.
- Trichet shows unease with euro strength but gets no official G10 support
Yesterday, Mr. Trichet said to be concerned about excessive exchange rate moves. However, the G10 apparently didn't join his concerns and the markets weren't impressed either. The US data and events probably will continue to set the tone for USD trading and for now the US news flow remains dollar negative

The Sunrise Headlines

- US equities continue their slide after rumours on problems at Bear Stearn drag the financials to new cycle lows. S&P now at the cycle lows, NASDAQ dropping further below lows confirming break.
- Asian equities higher despite Wall Street's decline and soaring Chinese inflation
- Bear Stearn denies rumours that it has liquidity problems but stock tumbles 11%.
- Lehman is laying off 5% of its workforce according to sources, while Blackstone reported very weak quarterly results, but stock ends up.
- Chinese inflation surges higher to 11-year high (8.7% Y/Y), stoking fears of a tighter monetary policy
- ECB Trichet sounds alarm on euro's rise, FT reports
- Crude seems unstoppable as it sets new high above 108 $/barrel, before easing marginally. There is no fresh news behind the move. Dollar weakness and hedge fund buying continue to be the talk in the market. Other commodities traded calmer.
- Very weak UK housing prices (RICS) and retail sales (BRC) might affect UK markets at opening
- German ZEW index and IEA oil report highlights for trading today

Currencies: Trichet Shows Unease With Euro Strength But Gets No Official G10 Support

On Monday, the eco calendar was thin, but global investor sentiment was still haunted by a new wave of negative credit headlines and rumours. However, the impact of these credit-related stories on EUR/USD was rather limited. EUR/USD traded in the 1.5360/80 area waiting for the declarations from Mr. Trichet after the G10 central bankers meeting. The G10 sees downside risks to the global economy, but also continues to warn about inflation risks. On currencies, the G10 apparently didn't feel the need (or didn't reach a consensus) to make any comments on the decline of the dollar or the strength of the euro. So, on this Trichet could only make some comments in its function of ECB president, and not as chairman of the G10. As ECB president, Mr. Trichet said to be concerned about excessive exchange rate moves and repeated that he noted with extreme attention that the US supports a strong dollar. Of course, the fact that he could only make these remarks as ECB president and not as G10 chairman suggests that there is no big support for the European point of view. On top of that, it remains difficult for the ECB to advocate a strong anti-inflation policy while at the same time trying to cap the strength of the euro which is perfectly in line with its anti-inflation policy. So, the EUR/USD reaction on Trichet's remarkets was rather limited. EUR/USD briefly dropped to the 1.5320 area upon the Trichet headlines but returned to the 1.5350 area soon and closed the day at 1.5340, marginally lower from Friday's closed at 1.5356.

Today, the eco calendar contains the US trade balance and the ZEW economic sentiment in Europe/Germany. Both series recently only had a rather limited impact on trading.

Regarding trading, we have a dollar negative bias and recent developments support that view. At least for now, we are not really impressed by Mr. Trichet's attempts to slow the ascent of the euro. In case of more bad news from the US, the ECB warnings will be forgotten soon. Last Friday's post-payrolls correction suggests the market needs some consolidation after the recent steep dollar losses. This may continue today and tomorrow as the US calendar is back-loaded this week with the US retail sales scheduled for Thursday and the CPI on Friday. However, room for any sustained dollar rebound remains limited.

Looking at the graphs, the EUR/USD picture was already euro constructive and the break above the 1.4968/1.50 only opened the way for further euro gains. We continue to feel confirmed in our long-standing buy-on-dips approach. The short-term picture remains positive as long as the pair holds above the MTMA (1.5174). A correction below could signal that the euro rally shifts into a lower gear.

Short-term the pair remains in overbought territory.

Support is seen at 1.531202 (Reaction low/Break-up hourly + daily envelop), at 1.5289/85 (Reactrion low hourly/Broken weekly Boll Top), at 1.5266 (Weekly envelope) and at 1.5174 (MTMA).

Resistance is seen at 1.5404 (ST high), at 1.5427 (daily envelope), at 1.5465 (reaction high), at 1.5482 (2nd target triple bottom) and at 1.5536 (Last target triple bottom).

USD/JPY

Yesterday, USD/JPY resumed its gradual downtrend and drifted lower throughout the session. A series of negative credit headlines during the US trading hours only reinforced the gains of the Japanese currency. USD/JPY dropped to the101.60 area yesterday and USD/JPY even came close to the 101.4 area (post-payrolls low) this morning. However, the test was rejected and USD/JPY currently trades again in the 102 area. The G10 meeting hardly left any traces on
USD/JPY trading.

This morning, Japanese Finance Minister Nukaga said he will keep carefully watching the FX markets. However, the rebound in USD/JPY this morning in Asia probably has more to do with the (slight) improvement in stock market sentiment in Asia rather than with the Fin Min comments.

Over the previous two weeks, USD/JPY fully joined the global dollar decline. Overall dollar weakness and a flaring up of global risk aversion hammered the pair to new cycle lows. Key technical levels are coming with striking distance (101.22 is 1999 low). Japanese officials will probably try to prevent an uncontrolled USD/JPY sell-off. However, we don't have the feeling that they are already at the point to take decisive action yet. This remains a sell USD/JPY into up-ticks market and if global market/credit uncertainty persists, a test of the 100 level is on the cards.

EUR/GBP

On Monday, EUR/GBP started the week on a weak footing, extending last week's correction. The pair event tested the0.7600 area around noon. The PPI and production data painted a mixed picture and only had a limited impact on trading. However, later in the session, the negative headlines from the financial sector and the credit markets again weighed on sterling sentiment and EUR/GBP started a gradual rebound bringing the pair to the 0.7637 at the close, even slightly higher compared to Friday's close.

This morning, the BRC retails sales and even more the RICS house price balance again painted a break picture on the health of the UK economy and sterling is again feeling some headwinds this morning, with EUR/GBP trading above the 0.7650 area at the moment of writing.

Except for the correction on Friday, EUR/GBP recently held close to the recent highs suggesting ongoing upward pressures in this pair. After the recent steep gains in EUR/GBP, some temporary consolidation shouldn't come as a big surprise. However, we hold on to our view that any sterling up-ticks should be considered a temporary in nature.

On the graphs, EUR/GBP set a corrective bottom at the end of January which was confirmed mid February. The break above the sideways trading range late February was an additional sign that sterling remains very vulnerable both to negative financial sector headlines and to fears of a pronounced slowing in UK growth. Short-term corrections on overbought conditions are always possible, but the trend is obvious and there is no reason at all to row against sterling negative tide. Any downward corrections in EUR/GBP, if they were to, occur, are seen opportunities to sell the sterling. The previous highs in the 0.7550/80 area should already give decent support in this pair.

The pair is in neutral territory

Support is seen at 0.7632 (reaction low), at 0.7620 (MTMA), at 0.7605/96 (ST low/Daily envelop), at 0.7580/77 (MT break-up + Weekly envelop/38 % retracement) and at 0.7553 (Break-up daily).

Resistance comes in at 0.7679 (Break-down), at 0.7693/97/99 (Reaction high/Second target double bottom/ irr B) and at 0.7706(Target triangle break).

News

Other: Input PPI rise to record high, while industrial production stalls

In the UK, the PPI showed little sign of abating price pressures, as the input PPI reached a fresh record high at 19.4% Y/Y and the output PPI stabilized at a 17-year high of 5.7% Y/Y in February. Core output PPI eased slightly from 3.2% Y/Y in January to 3.0% Y/Y in February. The persistence of strong increases in PPI is expected to keep an upward pressure on consumer price inflation in the coming months, which was already expected to rise towards the 3% level by mid-year.

At the same time, industrial and manufacturing production growth stagnated in January. In the three months to January, output remained unchanged compared to the three months to October, while the increase in energy supply was offset by the decrease in mining and quarrying.

The combination of upside inflationary pressures and slowing economic growth still puts the MPC between a rock and a hard place.

Download entire Sunrise Market Commentary

KBC Banking & Insurance

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Posted in: Economy,Finance and Investment,Forex

Why the US Dollar Could Rebound this Week

- ECB Trichet: Concern is Not the Same as Brutal
- USD/JPY: At Risk for Intervention?

Why the US Dollar Could Rebound this Week

Since the beginning of the year, one of the best trades in the currency market has been to short US dollars. Although we think that the dollar will continue to fall over the next few months, there is a good chance that it could rally this coming week. We have two pieces of data that could trigger the rally, Tuesday's trade balance report and Friday's consumer price release. With oil futures closing above $107 a barrel, inflation is a big problem. The Boston Globe has some great graphics on rising food costs. According to their report, egg prices have increased 50 percent over the past 2 years, while the prices of a red delicious apple and a gallon of whole milk have increased 20 percent. For the time being, retailers appear to be absorbing the costs. This weekend's Financial Papers have extensive coverage on how restaurants are substituting ingredients or altering their menu offerings in order to reduce costs without raising prices. None of these changes would need to be made if increasing food prices are not hitting the bottom line. It can be argued that headline inflation may rise sharply but the growth of core prices will remain muted. However with gasoline prices in many states hitting record highs, prices of goods excluding food and energy should begin to rise as well. As for the trade balance, which is more immediate, the weakness of the US dollar should have helped to increase exports and reduced imports. The risk of course is the retail sales report in the middle of the week. Consumer spending is expected to be weak, but rising prices could also boost the value of the goods sold. Wholesale inventories have increased nonetheless which suggests that even though hiring has slowed and the US economy has weakened, this has not stopped business leaders from restocking their shelves. Meanwhile intervention is the big buzz word in the currency market today but do not expect the Federal Reserve to participate. Whether they admit it or not, they like the fact the US dollar is falling because it is currently supporting growth by boosting exports

ECB Trichet: Concern is not the same as Brutal

This morning, ECB President Jean-Claude Trichet said that he is 'concerned about excessive exchange-rate moves.' This is the first time since November 8, 2007 that Trichet has specifically expressed concern about the move in the Euro. Back then, he called the rally above 1.46 'brutal.' That led to a 200 point drop in the EUR/USD that lasted for no longer than 24 hours. This was the same phrase that Trichet used back in November 2004, which eventually led to a top in the EUR/USD, but not until 2 months later. 'Concerned' is definitely a step down from 'brutal' but it is important to understand what Trichet is trying to tell us - which is that he cares about what is going in the currency. However for the time being his concern is still limited. The last time the ECB intervened was in 2000 and that was to strengthen the Euro shortly after its launch. If the 13 percent rally in 2004 triggered nothing but verbal intervention, don't expect the 6 percent rally year to date to stress Trichet out either. Meanwhile the German ZEW survey is due for release tomorrow. Recent economic data from the Eurozone has been good which should help to reduce overall pessimism.

USD/JPY: At Risk for Intervention?

As USD/JPY nears 100, intervention risk grows but will the Bank of Japan really take action after sitting on their hands for the past 4 years? Probably not. This is not the first time that USD/JPY has traded on the 101 handle without BoJ intervention. Back in late 2004, early 2005, USD/JPY hit a low of 101.70 and the BoJ did nothing, The main reason why the BoJ has not intervened over the past few years is because they want to lead by example and encourage China to make their exchange rate more flexible. If they intervene, it would set back all of their efforts. However intervention from Japan is still more likely than intervention from the Eurozone because Japanese corporations are beginning to suffer. The most recent Tankan survey showed that most Japanese corporations forecast the value of USDJPY in 2008 to be around 113.00. With the pair now rapidly approaching the 100 level, those hedges are deep in the red. However if they were to intervene, now would be a good time because positioning in the Japanese Yen is at an extreme, giving them the most bang for their buck. Yen long positions are at the highest levels since Feb 2004, right before the last BoJ intervention. USD/JPY short traders need to be particularly wary about intervention risk at this time.

Australian, New Zealand and Canadian Dollars Continue to Plummet

The Australian and New Zealand dollars continued to plummet as the Dow dropped another 150 points to a 6 week low. There was no data released from either country and gold prices continued to fall which means that risk aversion is the primary driver. The same can be said of the Canadian dollar because it also fell significantly despite stronger housing starts and another record high in oil futures. The Canadian trade balance and the new housing price index are due for release tomorrow. We expect both of these numbers to be CAD positive but it remains to be seen whether that will have a lasting impact on the Canadian dollar.

British Pound Weakens Against Euro and US Dollar

The British pound gave back its earlier gains against both the Euro and US dollar. Economic data was mixed with the annualized pace of output prices increasing less than expected but input prices increasing more than expected. Industrial production fell short of expectations as well, but manufacturing production rose in the month of January.

DailyFX

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Posted in: Economy,Finance and Investment,Forex

Forex Technical Update

Euro: Euro was range bound on Monday due to lack of any significant data as it traded within 90 pips and closed slightly weaker at 1.5343 compared to its opening levels of 1.5363 after Trichet's comment on currency market moves. Its daily chart shows an overbought position, while the 4-hrly and hourly charts show strong buying pressure. Strong support is seen at the levels of 1.5335 (21 4-hourly EMA). Longs can be initiated at those levels for intraday gain of 40 pips. (Eur/Usd-1.5363).

Pound: The Cable touched a 3-month high against the dollar at 2.0219 on the back of strong PPI data before finally closing at 2.0092. The daily chart is in overbought position while the 4-hrly and Hourly are close to oversold region. UK House price index is to be released today and it will dictate the further movement in Pound and 1.9955 levels (55 4-Hrly & 200 Daily EMA) could be seen. (Gbp/Usd- 2.0057).

Yen: Increased risk aversion and continuous declines in global equity markets boosted the yen as the pair touched an 8 year low of 101.38 which is the lowest level since 2000. The pair will continue to remain under pressure as the equity markets globally have not yet recovered. All of its major stochastics are giving bearish signals, while the daily and 4-hrly is still in the oversold territory. The immediate resistance is at 101.83 (21 hrly EMA) and break of this level will push the pair up to 102.21 ( 55 hrly EMA). (Usd/Jpy- 101.72).

Rupee : The spot rupee opened at 40.55 and fell to 40.71 due to weak equity markets and aggressive buying of dollars by oil companies to book forward dollars but recovered towards the end of the day along with the equity to close higher at 40.48/49 to a dollar. Medium Term Traget - 40.90. (USD/INR - 40.59)

Swiss Franc: USD/CHF pair traded in a range of 85 pips and dipped to a level of 1.0171 and later retraced to close stronger at 1.0192. All daily and 4-Hrly charts are highly oversold. Immediate resistance is seen at the levels of 1.0197 (21 hourly EMA) breaking of which could push it higher to the levels of 1.0224 (55 hourly EMA). (Usd/Chf- 1.0191) .

Australian Dollar: The Australian dollar continued to dip on the back of risk aversion as it fell by 150 pips from the days high and touched an intraday low of 0.9159. It touched the levels of 0.9047 in the early morning session which brought the 4-Hourly & daily stochastics close to oversold territory. Strong support comes in at 0.9142 levels (200 4-Hrly EMA). Look for opportunities to long at those levels for an intraday profit of 40 pips. (aud/usd - 0.9184).

Gold: Gold was very volatile yesterday, it lost $12 from its opening levels of $972.90 and touched an intraday low of $960.90. The daily charts are giving bearish signals while the 4-hrly still shows some buying pressure. The immediate support is at $968.00 (55 4-hrly EMA) and a correction upto that level is expected. (Gold - $971.75).

Dollar index: Dollar index has increased for the first time in few trading sessions to a level of 73.030. The immediate resistance is seen at 73.40. (8-Hrly moving average).

RCPL FOREX

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Posted in: Economy,Finance and Investment,Forex

Fed Under Pressure

The Fed will be under pressure to provide more support to US credit markets. Global risk will provide some dollar protection.

US non-farm employment fell by a further 63,000 in February after a downwardly-revised 22,000 decline for January. This was the weakest figure for close to five years and there were further falls in manufacturing and construction employment. Most sectors were weak which suggests a wider downturn and this will maintain weak sentiment towards the currency. There was a decline in the unemployment rate to 4.8% from 5.0%. The drop, however, reflected a sharp drop in the workforce as discouraged workers gave up looking for jobs while recorded employment fell which reinforced the weak data.

The data will reinforce recession fears in the US economy and maintain pressure for further Fed support measures. Governor Fisher warned the markets not to expect Fed action before the next scheduled meeting and he also stated that recent policy would not continue. The Fed did, however, announce that the auctions to boost market liquidity would be increased and widened in scope to help ease money-market tensions. This may curb immediate pressure for lower interest rates, but markets continued to price in a 0.75% Fed Funds rate cut in March with some speculation over a full 1.00% rate cut.

The dollar found some support weaker than 1.54 against the dollar in choppy trading, but conditions will remain very nervous in the short term

Investica

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Posted in: Economy,Finance and Investment,Forex

Finding The Retail Management Position For You

For millions of retail professionals throughout the world, the goals and desires that they hold within their professional lives vary greatly. Many young people and students work retail jobs in order to pay the rent or save up for tuition. Other young people take on retail jobs in order to gain general work experience in between graduation and their first permanent job. There are many, however, that work retail because they enjoy the interaction with customers and selling a product they believe in. For these workers, each day is a build up towards a position in retail management.

Retail managers range from branch managers to department heads within a corporate office. Retail management, therefore, covers all aspects of a retailer’s management and can lead to great possibilities for the right worker. These professionals need to have a strong set of skills before embarking on management tasks. Organization, strong business acumen, and an ability to deal with fast paced work are all keys to a successful retail management career.

However, the most important skill is dealing with diverse groups of employees who all have different backgrounds and goals. The problem in finding retail management jobs is the high expectations that retailers have from professionals in these positions. Managers are at the front line of a corporation’s enforcement of policy and creation of revenue. The high standards for these positions, coupled with the large number of retail employees aiming for management jobs, means that there is high competition for each position.

The retail professional that is looking outside of their current company for management jobs can turn to a variety of resources. Job sites offer a general listing of retail jobs, including the latest in management openings. Connections through friends and family can lead to interesting job opportunities, though this is hardly a reliable method of finding a job. Retail professionals looking for management positions should work with a recruiting agency.

Recruiting agencies can help retail workers find their ideal job in the industry. Younger workers who have the experience will find that an agency’s exclusive job listings are only one aspect of their service to their recruits. Many agencies offer an evaluation of interview skills and CVs in order to polish up those rough corners and loose ends in a candidate’s profile. As well, many agencies provide simulations and one-on-one sessions to help the aspiring manager find their inspiration. In all, recruiting agencies are a vital resource for potential retail managers.

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Posted in: Business Opportunities

Economics Weekly: Focus on UK 2008 Budget and Inflation Data

The 2008 UK Budget is presented by Chancellor of the Exchequer, Alistair Darling at 12:30 on Wednesday. His speech is likely to emphasise the view that public finances will deteriorate as the economy slows. We look for a downward revision to the Treasury's GDP growth forecast to 1.75% - 2.25% for this year and to 2.25% - 2.75% in 2009. The CPI inflation forecast will almost certainly be revised up from 2% in the November pre-budget report.

Inflation-related data will underpin the view that global supply-side pressures are mounting, see charts 1 and 2. US import prices may rise to 14% pa in February, due to higher commodity prices and the weaker dollar. In the UK, producer input prices for February could show firms' input costs rising close to 20% on an annual basis. With prices of major commodities breaking new highs again last week and as inflation expectations rise, there is some evidence that this is pushing up retail price inflation.

US and UK trade data for January may show some stability. But the current account deficits remain large as a share of GDP, at 5.4% and 5%, respectively contributing to currency weakness.

ECB President Trichet last week raised the eurozone's 2008 CPI inflation forecast to 2.9% from 2.5% three months ago; February CPI growth should be confirmed at 3.2% on Friday. But slower growth is also a worrying problem, and explains the ECB's reluctance to raise interest rates, despite CPI inflation currently well above the 2% ceiling. The German ZEW survey for March could fall below January's low of minus 41.6.

Events last week highlighted growing economic weakness in the US but rather stronger growth elsewhere. This is reflected in aggressive monetary easing by the US Fed - cuts in official funding rates and extentions to Term Auction Facilities (TAFs). By contrast, the ECB and the UK are treading more cautiously, fearful of CPI inflation escalating via wage pressures and, this month, voting to keep official interest rates on hold. Many fast growing economies such as Australia, New Zealand, Norway, India and China have been tightening policy because of inflation worries. Uncertainty about whether the US will have a recession and a credit crisis is contributing to a high level of financial market volatility. Arguably, a weak dollar is just what the US needs to slash its trade deficit. But soaring energy and raw-materials prices are hindering the speed of correction and leading to a build-up in underlying inflation pressures. This places the US Fed in a very difficult position going forward and offers little assurance to financial markets.

Other key economic data includes UK and EU-15 industrial output, which may have increased in January. In the US, despite the sharp deterioration in the NFP jobs market, February advance retail sales may rise to 4% pa, 5% excluding autos. Also, the first release of the University of Michigan index will give an indication of the level of US consumer confidence in March. The BRC retail sales monitor will provide useful information on the health of UK consumer spending in February.

Chart 1: US, UK & EU CPI inflation is trending upwards.

Chart 2: Supply side inflation pressure is building. This is raising consumer price expectations.

Full report here

Lloyds TSB Bank

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Posted in: Economy,Finance and Investment,Forex

The Federal Reserve to Act Aggressively Again?

The economy in the United States is fighting to stay above water and the Federal Reserve might again cut rates aggressively during next week meeting. For the first time in more than five years, the February Beige book reports that economic growth has slowed overall and the decline is well distributed among labor market, construction, consumer spending and manufacturing.

Worst not over yet in the U.S.

Much time is required to bring the economy back on track. Equity markets are still looking for a point of equilibrium and mortgage rates have risen, despite the aggressive rate cut of 225 basis points since last year. The Federal Reserve might cut rates by at least 50 basis points to 2.50% during March 18th meeting and another rate cut is expected before mid year. Housing remains the weakest spot of the U.S economy. Last week, the monthly S&P/Case-Shiller Home Price data showed that seventeen out of twenty cities fell year over year. In addition, both the ISM manufacturing and the non-manufacturing index, which covers almost 90% of the economy, stayed below the benchmark of 50 in February signaling that the slowdown is accentuating.

The Institute for Supply Managers' manufacturing activity survey printed 48.3 after increasing to 50.7 in January. Employment and new orders were among the weakest components. The non-manufacturing index increased instead to 49.3 in February from January's 44.6, but was below the important level of 50 for the second straight month. Growth is expected to moderate further in the coming months. In fact, payrolls declined 63,000 units (+23,000 expected) in February on the top of January's fall of 22,000. Job contraction covered most of the sectors from manufacturing (-52,000) to the construction business (-39,000). With less people active in the labor force, the unemployment rate eased slightly to 4.8% from January's 4.9%.

Euro's strength not a priority for ECB yet

As expected, the European Central Bank left rates unchanged at 4.00% during last week meeting. President Trichet confirmed inflation as the main target, although he acknowledged that growth might moderate further in the coming months. The strong euro was not even mentioned, as it helps to calm down inflation, which is now above 3%. In reality, the long wave of the financial crisis has not yet fully reached the European mainland. In February, the German Purchasing Manager's Index (PMI ) for the manufacturing sector printed 54.3, practically unchanged from January, while the PMI services increased to 52.2 from 49.2. Euro zone results remained above the benchmark as well. The manufacturing PMI eased slightly to 52.3 from 52.8 and the PMI measuring business activity increased to 52.3 in February from January's 50.6.

German industrial production rose 1.8% (0.3% expected) in January from December's gain of 1.5%. Construction business moved up 12%, the largest move of the past two years, supported by the mild winter, while production of investment goods jumped 6.2%. Economic growth is still dynamic in Europe with some exceptions. German manufacturing orders, as an example, fell 1.5% (-0.4% expected) month over month in January from December's -1.1%. In addition, in the fourth quarter, Euro zone growth was 0.4%, below the increase of 0.8% registered in the third quarter. Annually, the Gross Domestic Product (GDP) rose 2.2% in the fourth quarter from 2.7% in the previous period.

USD/JPY challenging support level

EUR/USD has reached the important resistance at 1.5450/1.55. The long/medium/short term trends are bullish, but a move above 1.5570 is necessary for 1.5640, eventually 1.5760.

GBP/USD has quickly reached the important resistance at 2.0150/2.02 where the 100 MA and the 200 MA meet. If this level hold, the next target could be 2.03.

USD/JPY is dancing on the important support line at 102.50/103.00. A rebound from this level could take the market to 104.50, 106.0. A follow though could target 101, 100.

Angelo Airaghi
MG Financial Group

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Posted in: Economy,Finance and Investment,Forex

Market Directions: The Credit & Dollar Crisis

Confirmation was at hand this week for the ailing United States economy. Though the official notification for the beginning of a recession, if there is one, is still seven weeks away with the release of the advanced GDP report for the 1st quarter on April 30th, one of the last positive American statistics has crumbled to recessionary levels.

Non Farm Payrolls registered its worst result since mid 1993 as the economy shed 63,000 jobs in February far more than anticipated. In fact the details of the report were worse than the headline. Private payrolls, the jobs created in the private sector of the economy fell for the third month in a row, contracting by 101,000. Government jobs had added 38,000 to payrolls. The job rolls for January and December were also smaller than initially thought, losing 46,000 after revisions. Even the unemployment rate which fell by 0.1% to 4.8% was the result of a decrease in the labor market participation rate. That is, fewer people were looking for work, entering the ‘discouraged worker’ category of the survey. The euro set another record high against the dollar at 1.5465 immediately after the release then consolidated a figure lower in the afternoon.

It has been a storm of anti dollar news and developments for the past several weeks. Statistics in the US are either skirting recessionary levels or have tipped into contraction. The Institute for Supply Management Indices, manufacturing and service are below 50. Consumer sentiment surveys are at levels not seen since the beginning of the Iraq war in 2003. Retail sales are slipping and the housing market remains moribund. Job expansion had been the last reason for confidence that the US might avoid a serious slowdown. With GDP barely positive in the fourth quarter, kept afloat by exports—and the lower dollar, the remaining weeks of the 1st quarter are likely to bring further bad news.

When the news is unremittingly negative is just the time to begin looking for a market reversal. There should be a reasonable expectation that the US economy will respond to the 225 basis points worth of Fed rate reductions already in place. In normal markets this anticipation would already be tempering the dollar’s fall. After all the real question for equity and currency traders is where will the economy be in the fall, six months from now? There is however, one complicating factor that may diminish and retard the full effect of the decrease in the Fed Funds target rate-- the credit crisis.

Eight months after its first explosion the combined banking, financial and credit crisis in the United States is still with us. With major financial institutions seemingly unable to clear their books or avoid continuing write downs and with the credit markets operating at much diminished levels for fear of what the future may hold, even excellent credit risk is not being funded by the banks. The Fed announcement that it will add $20 billion in available liquidity to future TAF auctions only underlined the unsolved nature of the banking and credit problems. Credit is the lifeblood of a modern economy. It will be difficult for equity and currency traders to assume the natural forward risk of betting on a turn in dollar when to do so they must also undertake the additional and unknown risk of a credit market meltdown.

The US housing market has been in slow motion decline for more than two years. Until very recently it has had little effect on consumer spending and only marginal impact on consumer sentiment. In fact I would argue it is the contraction in the financial markets and lending since last August that has had a far greater effect on business and job growth in the US than the collapse in housing. Nevertheless, with housing in extreme disarray and job losses now beginning, consumers are not likely to recover their animal spirits sufficiently to push the economy to recovery until the housing decline begins to reverse.

Worldwide commodity price inflation which has been fueled largely by demand forces shows no sign of abating. With the Fed taking a solely economic growth focus in the United States and a quasi-mercantilist position internationally, inflation in the States will get short shrift. It will also get worse. With headline CPI, which is after all what consumers must pay, having more than doubled since last July, consumers are worried about expenditures and not in the mood to increase spending.

Inflation is a known commodity in the financial and currency markets. Eventually, or sooner the central bank begins raising rates, when it becomes apparent that a tightening cycle is starting the currency rises. Recessions also have a known trajectory. Economies respond to lower interest rates and six months to a year after the reductions have begun GDP growth renews itself and the currency rises. The Fed has already supplied a substantial amount of stimulus to the US economy, and the US economy is six months into this rate reduction cycle. GDP growth and inflation will follow.

The US credit crisis has introduced a new and unknown factor into currency market calculations. Traders cannot be certain that the usual course of rate reduction by the central bank will prompt the usual delayed growth from the economy. At least they cannot be sure enough to stake speculative positions on the result. In this situation anticipation based on historical models, on the idea that the economy always recovers when the Fed applies stimulus, is not sufficient. Nor is the progression of rising inflation chased by higher central bank interest rates secure. The Fed is severely constrained by the health and liquidity of the banking system. Inflation is rising fast but Fed spokesman barely seem to have noticed. Rising inflation or a return to prospective economic growth should signal a recovery for the dollar. But until the credit problems in the United States subside any recovery for the dollar will be problematical at best.

Joseph Trevisani
Chief Market Analyst
FX Solutions

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Posted in: Economy,Finance and Investment,Forex