Asian Morning Update 30th January 2007
Like a rabbit caught in headlights…
European releases overnight:
December Forecast Actual
Swiss UBS Consumption Indicator 2.203 (prior) 2.200
January
Italian Business Confidence 91.3 91.6
U.K. CBI Distributive Trade Reported Sales 8.0 (prior) 4.0
Overall a fairly uneventful session yesterday for Europe. French consumer confidence was lower while Italian business confidence followed through from last week’s French number seeing a mild improvement.
Not quite the same for the U.K. which is seeing the business environment quickly dissipate. The CBI Distributive Trade Report saw a further loss with expectations becoming more pessimistic. All eyes will now be on the last hope for a less bearish outlook – consumer confidence and spending. However, with house prices dropping much faster than forecasts and building approvals dropping the outlook still looks bearish.
U.S. releases overnight:
December Forecast Actual
U.S. Durable Goods Orders (MoM) +1.9% +5.2%
U.S. Durable Goods Orders ex transport (MoM) +0.0% +2.6%
January
U.S. Consumer Confidence 87.5 87.9
Figures from the States were better than expected. Durable goods was a big surprise with one item that will please – the employment component rose and the “jobs-hard-to-get” component falling.
Early days obviously but any snippet of positive news will be gratefully accepted and with consumer confidence edging higher the passing of the stimulus package through the House of Representatives will also buoy spirits. The U.S. economy needs confident consumers to contribute to the 55% of GDP that will be needed to stave of recession.
And in a timely manner Fannie Mae is seeing the first signs of a refinancing wave according to their CEO. The object is to enable more subprime borrowers to stabilize their own finances, avoid defaults and more importantly bring more stability into the housing market.
All this is key to revitalizing the U.S. economy. Talk is of lower interest rates but Japan saw no benefit from zero interest rates. The recovery in Japan came on exporters climbing on the coat tails of the globalization boom. The domestic economy never took off and therefore the real issue is consumer confidence.
However, even if the U.S. avoids recession global growth is going to decline with the IMF lowering its forecast for this year from 4.4% to 4.1%, the weakest growth in 5 years. They maintain that no country will escape the impact of the credit crisis stemming from the subprime fallout.
That will ring warning bells in Japan where GDP has only been strong because of the buoyant export market. That is already being damaged on the back of lower growth – even exports to China declining by 20% over 2007. With the Yen at the highest level for over two year and just a sneeze away from the 100 level which has not been seen for over 12 years. The very flimsy domestic economy will also collapse on the back of that…
So while Juncker may continue to say that FX rates should reflect fundamentals, the fact is that they don’t and the Yen is overbought…
And a final comment for down under with the Australian newspaper suggesting that the RBA will need to hike by 50bp to control inflation. The view is shared by ANZ Bank – either with a one time 50bp hike or two 25bp hikes. The economy is still raging in spite of the global slowdown so it will be interesting to watch what the RBA will do next…
Overnight the Dollar remained on the soft wide on the expectation that the Fed will cut rates by at least 25bp and possibly 50bp.
The rate decision and the Q4 GDP from the States will be a big drag on enthusiasm until release. I’ll maintain that we’ll see 25bp only – maybe no cut at all – and this will return the Dollar back into ranges.
More later once the daily analysis has been done…
The following are economic releases from Asia due today:
Japan December Industrial Production (MoM) +2.0%
Japan December Industrial Production (YoY) +1.5%
Japan December Vehicle Production (YoY)
Australia January DEWR Skilled Vacancies (MoM)
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