News Wednesday 29th April

CALENDAR
April 29, 2009

GMT				Expected	Previous
1230	US	1Q	GDP, advance GDP	-4.6%	-6.3%
			PCE Price index		-4.9%
			Purchase Price Index		-3.9%
			Real Final Sales		-6.2%
1430	US	Apr	US Energy Dept Oil Inventories Crude Oil Stocks		370.6M
			Crude Oil Stocks (Net Change)	+2.2M	+3.85M
			Gasoline Stocks 217.3M Gasoline Stocks (Net Change)	-200K	+802K
			Distillate Stocks 142.3M Distillate Stocks (Net Change)	+700K	+2.68M
			Refinery Usage	83.5%	83.4%
2301	UK	Apr	Consumer Confidence Survey Consumer Confidence	-29	-30
2315	JPN	Apr	Mfg PMI		33.8
2350	JPN	Mar	Indus Production, prelim Industrial Output (on month)	+0.5%	-9.4%
N/A	US		Two-Day FOMC Meeting continues; interest rate decision expected around 2:15 p.m. EDT

FOCUS *Swine flu may yet drive the Bank of Japan down the road to intervention. A strong yen was already a problem for the Japanese central bank well before the flu outbreak, with the currency‘s safe haven status pushing it higher despite the deterioration in the Japanese economy. Now, fears of a pandemic have only made the yen even more popular, with some forecasters looking for the dollar to fall toward Y90 now rather than rally back over the Y100 level it was at only two weeks ago. Add to this the growing concern about the global economic recovery, as well as the latest worries about the stress tests being used on U.S. banks and chances are these forecasts could well be fulfilled. And, it isn‘t just short-term speculators attempting to push the yen higher. Analysts report that Japanese exporters, as well as institutional investors have been important buyers of the Japanese currency in recent weeks. This is hardly good news for the Bank of Japan.

*The central bank has already slashed interest rates effectively to zero and pumped liquidity through quantitative easing in an effort to stimulate the Japanese economy and avoid deflation. However, as recent data shows, much of these efforts have been in vain. Japan‘s GDP is still expected to contract over 6% this year, the nastiest slowdown among the Group of Seven leading industrial nations, and the risk of deflation still appears to be growing. Earlier this week, a 1.1% fall in retail sales drove home the point that domestic Japanese demand remains very weak and that the economy will rely on exports for recovery. Friday, the latest inflation data could also show that consumer prices are still declining on a year-on-year basis.

*Thus, the Bank of Japan will find itself in the same position as that other safe haven central bank - the Swiss National Bank, which was forced to sell the Swiss franc last month in an effort to boost liquidity, as well as improve the chances of an export recovery in Switzerland. The SNB itself may well have to return to the market again now that the swine flu pandemic fears have driven the franc higher again as well. Of course, like the SNB, the Bank of Japan will probably try to avoid the accusation of competitive devaluation by describing any currency sales as a form of the same quantitative easing that many other central banks have adopted to boost economic growth. If so, this could be a way for the Bank of Japan to ensure that the swine flu poses only a direct threat to Japan through infection of the virus itself rather than the added threat to the economy by driving the yen even higher.

EUROPE *The dollar and the yen are being pushed lower in Europe Wednesday as fears over a swine flu pandemic recede and global risk appetite recovers a little, Sentiment is also being helped by optimism over the global economy, with the euro getting additional support from suggestions that the European Central Bank won‘t be so aggressive in easing monetary policy. Although swine flu remains a major market concern, its threat to the global economy appears to have receded after the World Health Organization said there were only seven confirmed deaths from the flu in Mexico.

*There are still over 150 suspected deaths from the virus, which has now been detected in many major countries around the world. With pandemic fears abating, the focus of market attention returned to the world economy. New consumer confidence figures from the U.S., showing a much stronger- than-expected recovery last month, helped to lift optimism that the economy could be bottoming out.

WORLD *The euro rallied against the dollar and yen Tuesday in N. Y. as traders reversed the sell-off on swine flu fears a day earlier, and ahead of the FOMC. European policymaker comments Tuesday sharply contrasted expectations for the FOMC meeting Wednesday, and favored flows to the euro. ECB executive board member Bini Smaghi cautioned against further aggressive interest-rate cuts in the euro zone, while the FOMC is seen leaving its fed-funds rate unchanged near the zero mark. “Bringing the main policy rate too close to zero would risk hampering the functioning of the money markets as it would reduce the incentives for interbank lending,” said Smaghi, speaking at the International Center for Monetary and Banking Studies.

ASIA *The euro rose against the U.S. dollar and the yen in Asia Wednesday, building up on gains posted Tuesday after a top official hinted that rate cuts in the euro zone may end soon. The European currency, which is typically sold-off when global financial markets come under stress, remained within recent ranges though, as concerns over the swine flu outbreak linger amid reports of more suspected cases of infection in South Korea and New Zealand. Analysts say investors are also cautious ahead of the U.S. Federal Reserve interest rate announcement expected around 1815 GMT, and the release of first quarter U.S. economic growth data at 1230 GMT.