News 30th April 2009

CALENDAR

GMT				Expected	Previous
1230	US	Mar	Personal Income Personal Income	-0.2%	-0.2%
			Personal Spending	-0.1%	+0.2%
1230	US	Apr	Weekly Jobless Claims	645K	640K
			Weekly Jobless Claims Net Change	+5K	+27K
			Continuing Jobless Claims		3137000
			Continuing Jobless Claims Net Change		+93K
1345	US	Apr	Chicago PMI Employment Index		28.1
			New Orders Index		30.9
			Prices Paid Index		34.1
			Purchasing Managers Index (Adjusted)	34.7	31.4
			Supplier Deliveries Index		48.4
1430	US	Apr	EIA Natural Gas Inventories, in billion cubic feet Total Working Gas in Storage	1822	1741
			Total Working Gas in Storage (Net Change)	+81	+46
2230	JPN	Mar	CPI (Nation), CPI ex-food (Nation) Japan Core CPI (on year)	-0.2%	0%
			Japan Overall CPI (on year)		-0.1%

FOCUS *The Swiss National Bank may well play cat and mouse with the currency market for some time to come. Ever since the SNB intervened to drive the Swiss franc lower on March 12, the market has assumed that it would try and halt the franc from rebounding again. However, the SNB has desisted from intervening again so far, even though the franc has regained about half of its losses. Earlier this week, SNB Chairman Jean-Philippe Roth was keen to remind the market that intervention, which has a Swiss method of boosting market liquidity, remains an option. “The market reacted (last time) and the market knows very well if we ever find ourselves in the situation we were in it will find us active once again,” Roth said. So, what has changed since March 12 that might have changed the SNB‘s appetite for intervention? Not too much.

*The Swiss economy remains under pressure and deflation remains a risk. Wednesday‘s KOF leading indicator for April, the country‘s prime economic data, may have come in slightly better than expected at -1.86 instead of the -1.90 that had been forecast. However, the index is still way down from the revised -1.65 index for March and suggests that the Swiss economy is still contracting even if there are signs of stabilization. Hopes for some stabilization in the global economy have also risen in the intervening weeks, with any signs of an upturn in the euro-zone economies seen as positive news for the largely export-dependent Swiss. This optimism over the global economy should raise global risk appetite and reduce the attraction of the franc as a safe haven.

*However, the outbreak of the swine flu in Mexico last weekend has put fresh upward pressure on the Swiss currency, not only because of the risks of a pandemic raising risk aversion again, but because Swiss pharmaceutical companies that make the antiviral drugs for battling the flu are very much back in favor. As currency strategists at BNP Paribas warned: “Euro/franc could see a short-term setback given the outbreak of swine flu.” Back in March, the SNB had managed to push the euro all the way back up to nearly CHF1.5440 when it launched its intervention exercise with the euro down around CHF1.4750. Since then, the euro has slipped back steadily and is now bouncing around just above CHF1.50 on fears that the Swiss central bank will come in again if it falls beneath that level.

EUROPE *Rising risk appetite is pushing the dollar and the yen lower and helping the euro and other high-yielders higher in Europe Thursday. The improved sentiment was being driven by optimism over the global recovery, especially after Japan reported a surprisingly strong 1.6% rise in industrial production for March. The market had only been looking for a 0.8% increase after February‘s 9.4% contraction. The market is also looking for a rise in the Chicago purchasing managers index in the U.S. later in the day. This will lift hope of an upturn in the second quarter and further help to justify the market‘s subdued reaction to Wednesday‘s news that the economy had contracted by 6.1% in the first quarter.

*The rise in risk appetite also suggested that market concerns about swine flu have subsided, even though the World Health Organization has raised its pandemic alert to level 5 from level 4. Analysts suggested that the low number of deaths associated with the flu so far has helped to reduce fears of a nasty impact on global growth.

WORLD *A comeback for global risk appetites keyed a broad sell off in the dollar against most currencies other then the yen Wednesday in N. Y., as the greenback received only limited relief from a guardedly more upbeat Federal Reserve policy statement. Eased levels of global risk aversion and a rally for global equity markets were the dominant forces working against the dollar Wednesday, driving it to multi-week intraday lows against the euro and other currencies prior to a modest recovery in the wake of the Fed statement.

ASIA *The yen gained back some ground lost overnight to the dollar and euro Thursday after more bad news emerged on the U.S. auto industry. After the Wall Street Journal reported that the U.S. Treasury Department‘s talks with lenders to keep Chrysler LLC out of bankruptcy had broken down, some players dumped dollars and euros for the yen, which they consider a safer haven currency. Although the foreign exchange market had largely already priced in failure for the troubled auto maker, some players had persisted in believing Chrysler could avert this outcome, dealers said.

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.

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Sterling bounce up

Asian stock markets have gone through a sell session for the second time in a row this week on the back sharp declines in of financials. Meanwhile the Pound has bounced up against the Dollar after yesterday’s sell off.

Tokyo Nikkei Index has declined 3.3% and Hong Kong’s stock markets have also posted declines beyond 3% on Tuesday.

Financials and energy firms have lead declines on Tuesday, following Wall Street’s path, banks’ shares have been sold despite buoyant quarterly earnings’ results by Bank of America. Investors seem to be hesitant to believe that the global banking system is back to normal yet.

The GBP/USD has dropped to 1.4465 on early Asian session, bounce up to 1.4575 intra-day high, and hovers below 1.4570/80 resistance level.

The USD/JPY has also bounced up from 97.70 intra-day low, the Dollar has bounced to 98.45 high on late Asian session.

The Euro has remained rangebound, trading from 1.2900 to 1.2950, approaching to the highest level of the range ahead of the European session opening.

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JPY gains as falling Asian stocks

The yen rose from a five-month low against the dollar and euro as Asian stocks fell, damping demand for higher-yielding securities.

The yen gained versus all of the 16 most-active currencies on speculation credit-market losses will increase at financial institutions, spurring investors to buy Japan’s currency as a refuge from the global economic crisis. Australia’s dollar slumped the most in a week against the U.S. currency as traders increased bets that the Reserve Bank of Australia will reduce its key interest rate from the lowest level in 45 years.

The yen advanced to 134.41 per euro. Japan’s currency gained to 100.60 per dollar from 100.99.
The greenback traded at $1.3361 against the euro from $1.3416. Australia’s dollar slipped to 70.90 U.S. cents from 71.39 cents yesterday. New Zealand’s dollar declined 1 percent to 58.18 U.S. cents, halting a four-day advance.

No Change forecast for US Trade Deficit.

The US trade gap in February probably helded at 6 years low as the worst global slump since World War II caused exports and imports to collapse, economists said a head of a goverment report this week.

A deficit of $ 36 billion, the same as in January is the median estimate of ecnomist surveyed by Bloomberg News before Commerce Departement's report on Thursday. Others figures the same day may show the cost of imported goods increased in March for the fisrt time in eight months as fuel prices rebounded.

Flagging sales oversees will keep depressing US economic growth as manufacturers cut payrolls out put and inventories ( Bloomberg)

Yen slide to 5 months Low

The Japanese yen declined to a five- month low against the dollar and the euro as Asian stocks extended a worldwide equity rally on speculation the worst of the global financial crisis may be ending.

The yen fell against all of the 16 most-actively traded currencies, sliding against New Zealand’s dollar to the lowest since November, on expectations Federal Reserve Governor Kevin Warsh will signal today credit markets are thawing, damping demand for Japan’s currency as a refuge. The euro rose to a one- week high against the dollar on optimism a European Central Bank official may indicate a slower pace for rate cuts.

There’s a sense the global turmoil is easing, which is improving risk-taking appetite. This means the yen will likely weaken and currencies such as the euro and the pound will probably strengthen in coming days.

The yen traded at 136.76 per euro. Japan’s currency reached 100.93 against the U.S. dollar, the weakest since Oct. 21. The euro advanced for a third day against the dollar, climbing to $1.3567 from $1.3486.

New Zealand’s dollar rose as high as 60.35 yen, the strongest since Nov. 5. South Korea’s won rose 1.5 percent to 1,320.9 per dollar, extending four weeks of gains, as a demand increased for emerging-market assets following the Group of 20’s decision last week to strengthen the International Monetary Fund.

Demand for the euro increased on speculation European Central Bank Executive Board Member Lorenzo Bini Smaghi may signal in a speech today that the bank will slow the pace of rate cuts after lowering them last week.

The euro may strengthen to $1.3600 and 136.80 yen today. Benchmark rates are 0.1 percent in Japan, 0.5 percent in the U.K. and between zero and 0.25 percent in the U.S.

ECB President Jean-Claude Trichet said on April 3 that the central bank’s target lending rate could in a very measured way go down from the 1.25 percent level.

Analis predict that The Bank of Japan will keep interest rates near zero percent at the end of its policy meeting tomorrow.

Yen weakens above 100 per dollar

The yen weakened to above 100 per dollar for the first time in five months as the Group of 20 nations pledged to revive economic growth and on speculation the Federal Reserve will step up efforts to counter the U.S. slump.

The yen also fell to a five-month low against the euro and the Australian dollar as stocks rallied, increasing demand for higher-yielding assets. The euro is poised for a weekly gain against the dollar on speculation a European Central Bank official will signal the bank is done cutting interest rates after yesterday lowering them by less than economists expected.

The yen touched 100.18 per dollar and traded at 99.71. Japan’s currency weakened to 134.04 per euro. Europe’s single currency traded at $1.3446. Australia’s dollar rose to 71.39 yen. The New Zealand dollar advanced to 58.43 yen.