European Mid Morning Update 31st January 2008
No runaway Dollar selling as yet…
Releases from Europe:
December Forecast Actual
German Retail Sales (MoM) +1.7% - 0.1%
German Retail Sales (YoY) - 4.2% - 6.9%
French Producer Prices (MoM) +0.2% +0.2%
French Producer Prices (YoY) +4.5% +4.5%
January
U.K. Nationwide House Prices (MoM) - 0.4% - 0.1%
U.K. Nationwide House Prices (YoY) +4.2% +4.2%
The Nationwide confirmed the decline in U.K. house prices, which while not as bad as forecasts still left the annual price gain at the lowest level in 2 years. With yesterday’s mortgage approvals dropping to the lowest level since records began in 1999 the outlook for demand is negative. The Nationwide commented, “This undoubtedly signals a continued cooling in annual house price inflation during the months ahead.”
And in conflict with yesterday’s January Retail PMI, German December retail sales falling by -0.1% MoM and -6.9% YoY, a long way below forecasts. Employment still appears to be buoyant and business confidence still positive so it will be interesting to see whether consumers take heart over the coming months.
The following economic releases are due today:
December
Italian Producer Prices (MoM) +0.2%
Italian Producer Prices (YoY) +4.5%
Euro-zone Unemployment Rate 7.1%
U.S. Personal Income (MoM) +0.4%
U.S. Personal Spending (MoM) +0.1%
U.S. PCE Core (MoM) +0.2%
U.S. PCE Core (YoY) +2.2%
January
German CPI (MoM) - 0.3%
German CPI (YoY) +2.7%
German Unemployment Change -43K
German Unemployment Rate 8.3%
Euro-zone CPI Estimate (YoY) +3.1%
Euro-zone Consumer Confidence -10.0
Euro-zone Economic Confidence 104.1
Euro-zone Business Climate Indicator 0.86
Euro-zone Industrial Confidence 2.0
Euro-zone Services Confidence 13.0
U.K. GfK Consumer Confidence -15.0
U.S. Initial Jobless Claims (26th) 317K
U.S. Continuing Claims (19th) 2688K
U.S. Chicago Purchasing Managers 52.0
The half percent cut was not anticipated by all but even the Dow Jones couldn’t manage to recover into the black by the end of trading.
It does raise the fact that, as Paulson commented, interest rates aren’t a cure-all. It aids and smoothes but does not cure the underlying need for demand to drive business. Lower rates have not stopped the hemorrhaging of the housing market. Zero rates didn’t help Japan in their fight against recession.
Even the fact that a few recent economic releases have been better than expected: the very strong durable goods orders, an uptick in consumer confidence and a pick up in the employment market, doesn’t count for much. The ISM report due on Friday will be one to watch.
Against that, the worse than expected 0.6% GDP growth in the 4th quarter highlights how close the States is to recession.
However, the real crux of the solution is in the economic stimulus package. A $150 billion fiscal stimulus is big but the question is whether it will be big enough and implemented soon enough to avoid recession.
Paulson claims it could create more than 500K jobs by the end of the year but worries about its passage through the senate, saying time is of the essence. In Presidential election year neither Republicans nor Democrats will want to be saddled with a hospital pass. There is political will to help its passage.
Indeed, the passing of the stimulus package could well provide the market with the catalyst it requires to gain confidence but until that occurs jitters will still remain.
For the Dollar, it is hard to argue with the positive real interest rates of Europe as opposed to the negative real interest rates in the States. The market certainly expects further cuts in the months ahead.
Quite why the markets’ enthusiasm to sell Dollars yesterday wasn’t more pronounced is rather intriguing.
That it won’t try is hard to believe. The only bullish argument to be had is one of blind faith and that is something the market is short of.
However, how quickly the losses develop is another thing. It doesn’t yet look as if it will be a runaway plunge…
Note important support and resistance areas:
USDJPY EURUSD USDCHF GBPUSD
Res: 107.45-88 1.4955-76 1.0948-88 1.9962-06
Res: 106.75-90 1.4912-21 1.0867-02 1.9890-12
Spt: 105.56-73 1.4816-30 1.0795-06 1.9810-30
Spt: 104.95-05 1.4736-63 1.0673-13 1.9727-50
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