Decelerating Economic Contraction Increases Risk Appetite

* The dollar traded mixed on Wednesday after reports showed US industrial production declined more than expected and consumer prices posted their first annual decline since 1955. The Federal Reserve’s Beige Book showed that the US economic contraction continued through early-April but the pace of decline was decelerating in 5 of the 12 Fed districts. The Dow rose 109 points to 8030 on recovery optimism. The yen fell, unable to penetrate resistance after weak Japanese industrial production. Sterling rose, testing the 1.50 resistance after a report showed the slump in UK home prices eased. The Australian dollar rose modestly despite Westpac’s leading economic index falling to a 27-year low. The Canadian dollar rose for a third day on improved risk sentiment. The Swiss franc fell following a report of large losses by Swiss bank UBS.

* The EUR/USD fell following comments by European Central Bank council member Axel Weber indicating he favors extending the maturities of the ECB’s loans to banks to ease credit concerns. Weber implied the ECB will announce nonconventional measures for monetary policy next month. The EUR/USD is trying to find support. If Thursday’s reports on eurozone industrial production and CPI are weaker than expected, we may see a more serious challenge of the 1.30-1.31 support as ECB easing speculation would increase. A penetration of the short-term downtrend would be bullish for the EUR/USD.



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Financial and Economic News and Comments

US & Canada

* US consumer prices unexpectedly declined 0.1% m/m in March after increasing 0.4% m/m in February, CPI data from to the Labor Department showed. March CPI fell 0.4% y/y, the first negative annual rate since 1955, after a 0.2% y/y advance in February. The March CPI decline was led by a 3.0% m/m fall in energy prices. Food prices also fell 0.1% m/m. The core CPI, which excludes food and energy, increased 0.2% m/m for a third consecutive time in March, slightly more than expected. The largest upward contribution to March core CPI came from an 11.0% m/m rise in tobacco and smoking products. The core CPI rose 1.8% y/y. Real (inflation-adjusted) average hourly earnings increased 0.2% m/m in March and rose 4.3% y/y, helping support consumer demand despite continuing job losses.

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* US industrial production fell a more-than-expected 1.5% m/m in March, a fifth consecutive decline, after a 1.5% m/m fall in February, according to data from the Federal Reserve. At 97.4, industrial production was at its lowest level since December 1998. March IP fell 12.8% y/y. Manufacturing production fell 1.7% m/m in March after a 0.6% m/m decline in February. Overall capacity utilization declined more than expected in March to 69.3%, a historical low since records started in 1967, from an upwardly revised 70.3% in February. Manufacturing capacity utilization fell to 65.8% from 66.9%.

* The New York Fed general business conditions index rose more than expected to -14.7 in April from -38.2 in March, still indicating a manufacturing contraction in the New York region but at the slowest pace since September, according to data from the Federal Reserve Bank of New York. The new orders index increased to -3.9 from a record low -44.8 and the shipments index rose to -1.8 from -26.7. The prices paid index was unchanged at -14.6, remaining below zero for a fifth straight month, while the prices received index increased to -18.0 from -23.6. The employment index improved to -28.1 from -38.2. The manufacturing outlook for the next six months rose for a second time, with the future general business conditions index surging to 33.1 from 3.1.

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* The NAHB/Wells Fargo builder confidence index increased to 14 in April from 9 in March, indicating US homebuilder confidence improved to the highest level since October despite conditions remaining poor, the National Association of Home Builders/Wells Fargo reported.

* Net long-term TIC flows in February totaled $22.0 billion following January’s revised -$36.8 billion, according to data released by the US Treasury.

* The Federal Reserve’s Beige Book released today read: “overall economic activity contracted further or remained weak. However, five of the twelve Districts noted a moderation in the pace of decline, and several saw signs that activity in some sectors was stabilizing at a low level.”

Europe

* Germany’s wholesale prices declined a more-than-expected 0.9% m/m in March after slipping 0.1% m/m in February, data from the Federal Statistical Office showed. Wholesale prices fell a more-than-expected 8.0% y/y, the largest annual drop since January 1987, following February’s 5.7% y/y decline.

* The slump in UK house prices slowed in March, the Royal Institution of Chartered Surveyors reported. The number of real-estate agents and surveyors saying house prices fell exceeded those reporting increases by 73.1% in March. That compared with 78.1 in February and was the highest balance in 13 months. The average number of sales per surveyor rose to 9.7, the first increase since 2007, from 9.6.

* UK house prices fell 2.7% m/m and 12.3% y/y in February, the Department of Communities and Local Government said.

Asia-Pacific

* The Westpac Australian leading index, measuring future economic growth in Australia, was down 0.3% m/m in February, a sixth consecutive monthly decline, following January’s downwardly revised 0.7% m/m decrease, Westpac Banking Corp. and the Melbourne Institute said. The index contracted 5.1% y/y, the fastest annual pace since 1982. The coincident index, measuring the current state of the economy, was down 0.5% m/m after January’s flat reading. The coincident index’s growth rate was 0.7% y/y, well below its long-term trend of 3.4% y/y.

* Japan’s industrial production decreased 9.4% m/m in February, in line with preliminary report, according to final IP data from the Ministry of the Economy, Trade and Industry, after a 10.1% m/m decrease in January. February IP dropped 38.4% y/y, also in line with preliminary data, following January’s 30.9% y/y decline. Capacity utilization was revised to an 11.9% m/m contraction, compared to a previously reported 12.9% m/m decline.

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FX Strategy Update



©2004-2008 Globicus International, Inc. and Capital Market Services, L.L.C.

Источник: Hans Nilsson

15.04.2009