» Asian Morning Update 12th May 2008

The week seems likely to be volatile with limited, if any, Dollar gains now

States releases from Friday:
                                            Forecast      Actual
March U.S. Trade Balance  USD -61.4bn    -58.21bn

Friday’s releases were pretty much lacking in any great influence. The U.S. trade deficit was actually relatively positive from the point of view that lower imports helped it to come in narrower than expected but still at these levels of deficit there is still little positive.

Other than that there were snippets of news that really summed up last week. Slowing growth is creeping in globally and even if U.S. stats were better than expected there is still no real immediate prospect of significant improvement.

Quite what the market will anticipate is another story. We have already seen the over extension on the U.S. bearishness but whether this turns into outright bullishness for H2 is a different story – and probably unlikely to push through just now.

Without a doubt Europe is now suffering a stronger pullback, lead by the U.K. which had the Times pointing out that home repossessions are at an all time high. This is not quite as large a problem in Europe but is likely to grow as the slowdown develops.

Some commentators felt that the Euro is likely to benefit since the ECB has indicated that rates will not come down. Over the next couple of months this may be true but frankly the market does not like the combination of high interest rates, lower growth and higher inflation. It is not a situation that can continue for long without the European currencies being sold off.

Comparatively the States has only seen a brief level of stability in releases recently, certainly not enough to confirm a recovery. There are still negative factors that will keep the Dollar on the defensive. AIG posted a record loss in Q1 having written off $15bn in credit related writedowns. AIG, founded in 1919, hasn’t had two consecutive quarterly losses since its initial public offering in 1969. We await Q2 with interest.

Citibank is also back in the news considering the sale of non-core assets worth $400bn to reduce costs and raise profit levels.

A survey of consumers by the University of Michigan sees expectations of a sub 1% U.S. growth below 1% for this year. The group reported that the rapid diversification of the U.S. economy in recent years of globalization has also made it vulnerable to "micro recessions" that present new challenges to policy makers.

Quite possible with a sturdy array of problems facing the global economy not least of which being inflation. The IMF warned that global inflation has re-emerged as a major threat to the world economy. Oil prices show no sign of reversal. In turn this will maintain upward pressure on food prices and this will pressure the consumers’ spending ability.

The releases due this week mainly concentrate around European industrial activity and also inflation while the States offers the same but also some Fed surveys that may not maintain the improvements seen over the past weeks.

So as we start the week the Dollar has stayed close to Friday’s lows. It is due a correction following the largest rally against the Euro in 2 ½ years. The only question that remains is whether the Dollar can muster strength for one last test higher before the correction begins.

More likely the numbers from both sides of the Atlantic will fail to inspire which suggests a choppy week but the Dollar’s upside does look limited at best now.

More later once the daily analysis has been done…

The following releases are due from Asia due today:

Australia
March Home Loans         (MoM)    - 0.8%
March Investment Lending
April NAB Business Confidence
April NAB Business Conditions

Japan – April
Money Supply M2+CD      (YoY)    +2.2%
Broad Liquidity                (YoY)    +3.1%
Bankruptcies                   (YoY)    +8.0% (Prior)
Machine Tool Orders        (YoY)    +3.3% (Prior)
Eco Watcher’s Survey: Current          36.9 (Prior)
Eco Watcher’s Survey: Outlook         38.2  (Prior)

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