Yen and Dollar Rise as Stocks Make New Low

* The greenback and yen rose as a renewed sell-off in equities boosted haven demand on Thursday. Dow Industrials plunged over 4% to 6594, the lowest in 12 years. The Dow is currently less than 200 points away from the level when Federal Reserve Chairman Alan Greenspan on December 5, 1995 warned about “irrational exuberance”; now it may be time to warn about irrational apathy. General Motors said its auditors have raised doubt about the company’s ability to continue operations and banks fell to new lows. The pound and euro fell after the Bank of England and the European Central Bank both cut interest rates 50 basis points to 0.50% for the UK and 1.50% for the EMU. Both currencies are just above important support against the dollar. Commodity prices fell after China’s Premier Wen Jiabao indicated the government does not see a need to increase its economic stimulus. The lower commodity prices and increased risk aversion pressured the Australian and Canadian dollars.

* The EUR/GBP dropped for a third day. Both the ECB and the BOE announced their monetary policy decisions today. The euro fell as ECB President Jean-Claude Trichet warned that eurozone growth will be significantly reduced in 2009 and 2010, while inflation will remain well below 2%. He also indicated interest rates would be cut further and that the ECB is studying non-standard measures to ease monetary policy. The BOE, ahead of the ECB, already outlined plans to stimulate the UK economy by using quantitative easing. The BOE will buy government and corporate bonds of £75 billion financed by the issuance of central bank reserves. The EUR/GBP broke last year’s strong uptrend and is in a downward sloping trading channel. The pair has so far been unable to penetrate the resistance from the upper trading band and the 0.90 resistance. If this is broken, the pair will gain. There is support in the 0.87 area. ©



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Financial and Economic News and Comments

US & Canada

* US factory orders declined for a sixth consecutive month in January, falling a less-than-expected 1.9% m/m to $351.9 billion, following December’s downwardly revised 4.9% m/m drop, data from the Commerce Department showed. Excluding transportation, January factory orders decreased 0.9% m/m, after December’s 5.4% m/m decline. The month-on-month decline in January data reflects a pullback in business spending amid a deepening US recession. Factory orders dropped 21.3% y/y.

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* US nonfarm productivity fell at a 0.4% annual rate in Q4 2008, the first decline in a year and much less than a 3.2% gain originally estimated, according to the Labor Department. Nonfarm productivity increased 2.2% y/y. Compensation per hour in the nonfarm sector increased at a 5.3% annual rate in Q4, up 4.1% y/y. Nevertheless, due to the energy-related decline in consumer prices in Q4, real (inflation-adjusted) compensation rose at a 15.9% annual rate in Q4, up 2.5% y/y. Unit labor costs rose at a 5.7% rate in Q4, more than prior projections, and increased 1.8% y/y.

* US initial jobless claims fell 31,000 to 639,000, exceeding 600,000 for a fifth consecutive week, in the week ending February 28, while continuing claims fell 14,000 to 5.106 million in the week ending February 21 from a record 5.12 million the prior week, the Labor Department reported.

* Canada’s building permits fell for a fourth consecutive month in January, falling a less-than-expected 4.6% m/m led by a drop in residential building approvals, following December’s upwardly revised 3.6% m/m decline, according to Statistics Canada. Building permits dropped 23.8% y/y.

* Canada’s Ivey PMI stood at 45.2 in February, higher than expected, following a record low of 36.1 in January, according to the Richard Ivey School of Business and the Purchasing Management Association of Canada. A reading below 50 indicates that purchases were lower than the previous month.

Europe

* Eurozone GDP contracted a record 1.5% q/q in Q4 2008, preliminary data by Eurostat showed, in line with expectations and flash estimates, following Q3’s 0.2% q/q contraction. The Q4 GDP fell a more-than-expected 1.3% y/y, down from a 0.6% y/y increase in Q3.

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* Germany’s retail sales, adjusted for inflation and seasonal swings, unexpectedly declined 0.6% m/m in January as labor market concerns suppressed spending, following an upwardly revised 0.5% m/m gain in December, the Federal Statistical Office reported. Retail sales fell a more-than-expected 1.3% y/y, following December’s upwardly revised 0.4% y/y increase.

* The European Central Bank cut its benchmark interest rate 50 basis points to a record low of 1.50%, as forecast, in an attempt to counter an intensifying eurozone recession. ECB President Jean-Claude Trichet indicated the ECB will lower the key rate further, saying “we didn’t decide ex-ante that this was the lowest point that we could attain.” Trichet also said he isn’t yet prepared to include unorthodox policy tools. We believe the ECB will probably wait until May for another rate cut.

* The Bank of England cut its key interest rate 50 basis points to a record low of 0.50%, as expected, to combat a worsening UK recession. The BOE said it will take the unprecedented step of printing money to purchase as much as £150 billion ($211 billion) in government and corporate bonds, adding that it may take up to three months to carry out the asset purchases. “It is very unlikely interest rates will go any lower,” BOE Governor Mervyn King said in an interview on Sky News. “What we’re trying to do now is push the supply of money up.”

Asia-Pacific

* Japan’s capital spending fell 17.3% in Q4 2008 after falling 13.0% in Q3, the Ministry of Finance said. Capital spending excluding software dropped 18.1% in Q4, a seventh quarterly drop, following a 13.3% fall in Q3. Profits plunged 64.1%, the most since 1974.

* Australian building approvals declined for a seventh month in January, falling 3.7% m/m, following December’s upwardly revised 1.9% m/m decline, the Australian Bureau of Statistics (ABS) reported. Building approvals dropped a more-than-expected 33.5% y/y in January, the largest year-on-year decline since March 2001.

* Australia’s trade surplus widened slightly less than expected in January to A$970 million from a downwardly revised A$417 million in December, according to the ABS. Exports slumped the most in three years, falling 5% to A$24.2 billion, while imports fell 7% to A$23.3 billion.

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Источник: Hans Nilsson

05.03.2009