US Housing Woes 26/02/2009
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New Home Sales are at a record low. Here is John Authers’ gloom assessment.
Market Roundup 26/02/2009
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The foreign exchange market price action proved lack lustre today, despite awful US data, continued digestion of the new US budget and focus in the UK about the future of the banking sector. The main story to catch the eyes of market participants was the continued descent of the JPY and the end of its inverse correlation to equity markets and, more generally, risk sentiment. As the market has absorbed the truly horrific numbers coming from Japan. It is now very likely to be the first developed economy to enter depression- measured as a fall of 10% of GDP. As mentioned in the earlier post today an important driver for the weakness in the JPY has been Japanese domestic demand for foreign bonds- lending a net $6 trillion in the 4 weeks to February 20th. USDJPY reached a high of 98.70. From a technical viewpoint USDJPY may pullback before retesting the psychologically important 100.00 level, given that the Daily RSI is now above 75 for the fourth day in row- a strong signal that the pair is overbought.
Both EURUSD and GBPUSD continued to trade in relatively narrow ranges. EUR remained within a 90 pip range from 1330 to 2030GMT, from 1.2720 to 1.2810. The same goes for sterling, with Cable trading between 1.4260 1.4360. This is despite news of the UK government taking further, as yet unofficial, steps to nationalize troubled UK banks. US Durable Orders fell a larger than expected 5.2% in January, meaning that since January 2008 leading to decline by 26.2%. Non-defence capital goods orders excluding aircraft – a gauge of business investment – tumbled 5.4% during the month and 20.2% from a year ago. All told, the declines suggest that the US economy is suffering at the hands of waning demand on both the consumer and business level.
Foreign Exchange Report 26/02/2009
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The main story in the FX market has been the consistent weakening of the of the JPY which overnight in Asia breached new lows against the USD of 98.02, its lowest since November 14, in European morning trading. The Japanese currency is headed for its worst month against the USD in 13 years and the worst against the EUR since 2000. The sheer awfulness of the data coming out of the world’s second largest economy has destroyed the JPY’s safe haven status. The trade deficit widened in January to the most in thirty years as exports had slumped by 46%, according to Ministry of Finance officials. The unemployment rate probably hit 4.6%, its highest since February 2005. Data from the Ministry of Finance shows that Japanese investors have a renewed appetite for foreign bond markets, purchasing JPY 1.23 Trn in the week ending the 19 February, preceded in the last years only by the previous week’s purchase of JPY 1.36 Trn. With a total absence of trust in the competence of the government (the Prime Minister is enjoying 10% approval in the opinion polls) to turn the economy around USDJPY should continue higher, targeting the 200 day moving average of 100.5.
EURUSD has traded in a 70 pip range in European trading, following a volatile few days. EURUSD, which has generally risen with greater risk appetite in recent weeks, was well supported following news that UBS was to replace its chief executive and the UK was extending bank guarantees on assets. Nevertheless, the currency pair could not break into the 1.2800 level as reminders of the fragility of the eurozone kept risk appetite in check. Economic confidence in the eurozone fell to new 25 year low of 65.4 from 67.2 in January. Meanwhile in Germany unemployment continued to rise, by 40,000, which despite being lower than expected has reinforced the perception of continued economic pain in the region. In today’s FT, EU Monetary Affairs Commissioner Almunia said that the degree of co-ordination should be seriously improved, suggesting that Europe has “sown the seeds of a slow recovery and will lag the US when the recession ends.” On the the subject of co-ordination, disagreement remains over how the EU should proceed when dealing with the PIIGS countries, particularly Spain and Ireland in their deteriorating credit ratings, exploding fiscal deficits and rumours of exit from the single currency. A failure to agree is likely to weigh on the EUR.
GBPUSD has been well supported at the 1.4100 level for the last few weeks. Having traded as low as 1.4159 overnight Cable crawled back up above the 1.42 handle on news that the UK government is extending its asset protection scheme. Royal Bank of Scotland announced (after reporting a GBP 24.1 Bn loss for the year – the largest in UK corporate history) that it will participate in the government’s scheme and will insure assets worth GBP 325 Bn. The bank will pay a participation fee of GBP 6.5 Bn. The group also announced a sweeping restructuring plan aimed at restoring standalone strength. The BoE’s King, speaking to the Treasury Committee this morning, said that the Treasury has begun a rigorous audit of the nation’s banks. When asked about asset purchases to boost money supply: “We are not going to allow a great inflationary surge. The problem at present is not that the amount of money in the economy is growing too rapidly, threatening an inflationary surge, it’s that the amount of money in the economy is growing too slowly. And that is why we’ve asked the Chancellor for powers to engage in asset purchases in order to increase the amount of money in the economy and I would expect that to happen over the next few months.” The Nationwide Building Society house price survey shows that prices in February fell 17.6% Y/Y (compared to a 16.6% drop in January), making it the largest yearly decline since it began collecting comparable data in 1991.
From the US, Durable Goods orders, New Home Sales and Jobless Claims will be released at 1330 GMT.
Long Hot Summer 2.0 23/02/2009
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Police predict a middle class revolt.
Chicago- the last bastion of capitalism 19/02/2009
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We are all Keynesians now. We all agree that, left to its own devices, unregulated capitalism will eat itself alive and government must act now to prevent economic collapse. Right? Not quite. One city in America remains defiant. Observe the last remaining ideologues in the western world.
Midday FX Update 19/02/2009
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Fears about the future of eurozone economy and financial system have been tempered today by reports that the German government would back assistance to a troubled Euro-zone member states. This is in spite of an EU rule known as the “no bail-out” clause which prohibits collective liability for debt incurred by an EU member state. Western European banks are massively exposed to Eastern European debt. Eastern European countries have taken a huge hit from the loss of their chief engine for growth, exports. Risk appetite has picked up, with oil increasing and gold selling off. EURUSD rallied strongly in European morning trading from an overnight low of 1.2526 to over 1.27 by 1pm GMT. Also helping the Euro was release of the the German DIHK, which concluded that the weaker Euro was starting to be helpful for exports. Nevertheless its outlook for 2009 was “bleak”. GBPUSD also benefited from the more sanguine mood, rising in European morning trading from 1.4260 to 1.4420. This was despite data showing a large drop in tax receipts in January, precipitating a sharp increase in the fiscal deficit. European equity markets were in positive territory for the first time in seven days. US data, which showed a smaller than expected decline in producer prices and much higher then expected initial (627k) and continuing (4987k) jobless claims, had surprisingly little effect on the foreign exchange market. The BOJ left rates unchanged at 0.1% as expected while the government has downgraded its assessment of the economy for the 5th straight month and describes the economy as being in a severe state. USDJPY continued its ascent, testing the key 94.50 level.
Overall, the market appears to be catching its breath from the sharp decline in sentiment over the last couple of days. The comment made by the German official about rescuing other countries, was just that- a comment, and an unattributable one at that. Conditions remain dire and the recent pause in the sell off in Euro currencies and the JPY is merely a result of profit-taking by dollar bulls. Technically, EURUSD and GBPUSD are reaching strong resistance levels, with may traders looking to re-enter a short trade in these currencies: EURUSD targeting 1.25, and GBPUSD targeting 1.40. USDJPY is close to testing the key 94.50 level (it reach 94.44). A break higher would change fundamentally the landscape of the FX market- confirming the end of the strong JPY.
UK “close to depression”- BNP FX Head 19/02/2009
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This clip from yesterday morning gives a depressing assessment of the UK economy. From Hans Redeker, BNP’s Head of FX Strategy
Dark times ahead 19/02/2009
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Niall Ferguson warns of a new age of upheaval.
Where Economists agree 18/02/2009
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Rescuing the reputation of the “dismal science” Mankiw has compiled a list of what economist actually agree on.
Review of the Day 18/02/2009
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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.
Brave New World 