European Mid Morning Update 30th January 2008
The countdown begins…
Releases from Europe:
Forecast Actual
January French Business Survey: Overall Demand 18.0 13.0
Little out so far today – just the French demand survey which unsurprisingly marked a decline from last October of 5 points. This reflects a decline in the ratio of respondents looking for a rise in demand. Will have no impact but does confirm the trend.
The following economic releases are due today:
Q4
U.S. GDP Annualized (4Q A) +1.2%
U.S. Personal Consumption (4Q A) +2.8%
U.S. Core PCE (4Q A) +2.5%
December
U.K. M4 Money Supply (F) (MoM) +1.5%
U.K. M4 Money Supply (F) (YoY) 12.3%
U.K. M4 Sterling Lending (F) GBP
U.K. Net Consumer Credit GBP 1.1bn
January
Italian Retailer’s Confidence General
Italian Services Survey
Italian Bloomberg Retail PMI
French Bloomberg Retail PMI 51.0
German Bloomberg Retail PMI
Euro-zone Bloomberg Retail PMI
Swiss KOF Leading Indicator 1.95
U.S. ADP Employment Change 40K
And of course the news of the day is the FOMC decision…
However, I’m sitting here wondering why the Fed would go into last week’s decision and I can only suppose that they decided that they wanted to act before the FOMC given the state of the Dow Jones. I cannot fathom why they would want to cut 75bp and still have intention to cut another 50bp… 125bp in one week? Smacks of panic.
Given that the Soc Gen squaring may have contributed (and thus doesn’t reflect investor sentiment) I reckon we’ll get 25bp at most and only because they will probably want to avoid the market panicking again.
Let’s face it, Japan had a zero rate policy for a long time and it wasn’t really that which prompted the (very) shallow recovery. That came on the back of global demand - and therefore can be attributed to globalization. Remember the domestic economy here is poor to bad…
Therefore there is only so much that can be gained by lower interest rates. The pressing need is to ensure consumers continue spending - that’s 55% of GDP. That is not so much an issue of interest rates but confidence. That’s what the fiscal stimulation package is for…
But the FOMC decision is not the only news of the day. The U.S. also releases its preliminary Q4 GDP (annualized) expected to around +1.2%. This is going to be possibly more important than the rate decision.
It will tell us exactly the strength of the U.S. economy as we move into the Presidential election year. Any figure above +1.2% will be positive as the markets will have to reappraise the likelihood of a recession and whether the fiscal stimulation package will stave off recession.
Anything below doesn’t bare contemplation…
While not as influential we also have the Euro-zone retail PMI numbers which will provide us with more information as to how strong the recent pullback in the economy has been. They have looked a little better but the other side of the coin is just how long this can last.
I sense we’ll see the Dollar higher by the end of the day.
Note important support and resistance areas:
USDJPY EURUSD USDCHF GBPUSD
Res: 107.88-20 1.4885-21 1.1015-55 2.0006-44
Res: 107.21-43 1.4796-32 1.0960-66 1.9927-62
Spt: 106.37-51 1.4705-28 1.0882-88 1.9845-50
Spt: 105.40-76 1.4610-59 1.0806-11 1.9747-81
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