Brave New World

Review of the Day 18/02/2009

The main story in the market today has been the rise of USDJPY, rising to a level to 93.97, a level not seen since January 7th and now targeting a crucial technical level of 94.50. Following a shaky start to the day with equity markets continuing to grind lower, sentiment improved on details of Obama’s $75bn housing relief program, designed to stem home foreclosures. Obama’s plan will create a new program to help up to 5 million homeowners refinance conforming loans owned or guaranteed by Fannie Mae and Freddie Mac. The Treasury Department will buy up to $200 billion of preferred stock in each of the housing companies, twice as much as previously pledged, the announcement said. Some analysts predict that it will entice Japanese investors to buy more debt issued by Fannie and Freddie. This could weaken the JPY further, leading the USD to be the sole safe haven currency. 

Earlier, the USD was given a boost by poor housing and industrial production data from the US. Housing starts for January were  a record low of 466k, a plunge of -17% m/m from a revised 560k in December and way below the market expectation of 530k. Meanwhile, building permits fell to an annualized rate of 521k in January, in line with market expectations. With new home sales at a record low and record foreclosures, inventory of new home sales is now at a record high of 12.9 months, more than twice the 6 months supply needed for a stable market, according to the National Association of Realtors.

In Europe, the German Finance Minister Steinbruek said that the EU would help vulnerable members of the Eurozone, helping “to stabilize countries and the course of the euro”. In a separate and rather bizarre development the European Commission called on EU member countries to bring their budget deficits in line with the terms of the Growth and Stability Pact, ie keeping under the 3% of GDP limit.