» Asian Morning Update 15th April 2008

Central Bank intervention is required soon if G7 wish to retain credibility

European overnight releases:

February                                            Forecast    Actual
Euro-zone Industrial Production  (MoM)   +0.2%     +0.3%
Euro-zone Industrial Production  (YoY)    +2.9%     +3.1%

March
U.K. PPI: Input                        (MoM)   +1.9%     +1.8%
U.K. PPI: Input                         (YoY)   19.3%      20.6%
U.K. PPI: Output                      (MoM)   +0.5%     +0.9%
U.K. PPI: Output                       (YoY)   +5.6%     +6.3%

Producer Prices in the U.K. have hit their highest rate in 17 years. It was driven partly by the budget initiated higher taxes on tobacco and alcohol but at 20.6% YoY the numbers will provide the BOE with a significant problem in keeping inflation within the 3% higher band.

It also puts them in between a rock and a hard place in deciding interest rate policy as the economy slows and the credit crunch tightens. Indeed, it will probably cause them to decide to edge rates lower on a gradual basis in a manner that could exacerbate the credit tightening. With inflation likely to rise also it is likely to put further pressure on consumers’ budgets which will impact on lower high street sales.

Elsewhere we have seen a fairly constant stream of comments from ECB officials who see no room for interest rate cuts this year as inflation is likely to remain above 3% for the remainder of the year.

From the Wall Street Journal was an article suggesting that following Citibank’s move to offload leveraged debt, Deutsche Bank are seeking to sell $20bn to remove it from the balance sheet. Watch this space. There’ll be plenty more of this to come.

States overnight releases:
     
February                                      Forecast   Actual
U.S. Business Inventories                 +0.5%   +0.6%

March
U.S. Advanced Retail Sales    (MoM)   +0.1%   +0.2%
U.S. Retail Sales less Autos   (MoM)   +0.2%   +0.1%

Slightly better than expected retail sales from the States but business inventories were higher in March after sales dropped -1.1% - the biggest decline since January last year. It brings the inventory to sales ratio to 1.28, up from 1.26 in February.

The Wall Street Journal also ran another article claiming that the lack of a stronger statement from the G7 meeting probably indicates that there was no agreement on the manner to coordinate an effort to solve the credit crisis.

This may well be so from the central bank viewpoint. However, with the problem having been generated by lax risk control and over zealous packaging of questionable debt the solution is not one that can be developed quickly. The central banks can add liquidity but what is required is stronger confidence by banks to extend credit.

This can only come from new regulatory controls that presumably will limit balance sheet exposure to leveraged debt together with greater transparency in the make-up of packaged debt. This will take time.

Well, the Dollar’s sudden spike higher on yesterday’s open didn’t last long… It does go to show that even if G7 revises its wording to be sterner the market needs action and not verbage. It puts the Dollar back down towards its lows and once again at risk of pushing through the 1.5912 high.

To be frank, if G7 wants to garner more respect for its statements it needs to act as soon as the Euro pushes above 1.5912 again. A combination of a sterner statement and action will cause the market to have second thoughts…

More later once the daily analysis has been done…

There following releases are due from Asia due today:

Japan March Tokyo Condominium Sales  (YoY) 

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