Asian Morning Update 5th June 2008
Like a bachelor the market has a fear of commitment…
Releases from Europe:
April Forecast Actual
Euro-zone Retail Sales (MoM) +0.2% - 0.6%
Euro-zone Retail Sales (YoY) - 0.8% - 2.9%
May
U.K. Services PMI 50.5 49.8
Releases from the States:
May Forecast Actual
Challenger Job Cuts (YoY) 103.5K
ADP Employment Change - 30.0K +40.0K
Non-Manufacturing ISM Composite 51.0 51.7
Jobs data was mixed while the non-manufacturing ISM was much firmer than expected but still down from April’s 52.0. Overall, while employment numbers are still suffering there are signs from improved corporate profitability along with the Fed surveys that U.S. industry is beginning to cope with the fallout of the past year.
Speaking once again yesterday Fed chairman Bernanke also spoke more positively on corporate conditions but cautioned that rising public expectations for inflation are a “significant concern.”
He also pointed out though that “there’s little sign they are driving workers to demand higher wages as occurred in the 1970s and committed himself to “Maintaining confidence in the Fed’s commitment to price stability remains a top priority.”
All nice and hearty comments but there are still many risks and the central one now is consumer confidence. In fear of losing their jobs and being able to cope with higher prices provides no contribution to confidence and this needs now be the main drive by the Fed and the U.S. administration.
They are acutely aware of the inflationary threat and this is causing the market to believe there may be room for a rate hike. The OECD cautioned against such a move recommending that the Fed should retain an unchanged policy for another 12 months.
Unless there is any significant increase in domestically driven growth and demand leaving rates unchanged should do little to worsen inflationary pressures which are already providing a drag on spending anyway.
The same can be said for the Euro-zone where the OECD recommended the same strategy but here they extended the period of unchanged rates to 18 months as they see growth continuing to moderate to +1.7% this year and +1.4% next. They also see the U.K. positing a 1.4% GDP next year too but remain more bearish for the European island.
Following Germany’s shock slide in retail sales the numbers for the Euro-zone as a whole also took a tumble and tends to argue in favor of the OECD’s case. While Bernanke pointed out that a 1970’s style wage spiral does not appear to be developing in the States the same may not be true for Europe where the mainland is seeing a boom in industrial protests against rising costs.
Through all this the Dollar really failed to make much headway yesterday possibly feeling a slight concern over news reports of Lehman’s Q2 hedging losses of around $600m and the sharp decline in its stock which is making life difficult for the Wall Street firm to raise fresh capital.
Ahead of today’s ECB rate decision, which is again expected to end with an unchanged policy, the market looks to have taken a day off and awaits Trichet’s post conference musings although he normally provides little new information at these meetings preferring a more consistent transparency throughout the month.
There is little on the release slate either with just U.S. Factory Orders having the potential to shift the Dollar one way or the other. Even then the prospect of tomorrow’s non-farm payroll numbers will probably restrain the market from excessive moves once again.
More later once the daily analysis has been done…
The following releases are due from Asia due today:
Australian April Trade Balance AUD -1.70bn
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