» Asian Morning Update 7th May 2008

The market lacks the will to push the Dollar in either direction aggressively

European Releases overnight:

March                             Forecast  Actual
Euro-zone PPI         (MoM) +0.7%   +0.7%
Euro-zone PPI          (YoY) +5.6%   +5.7%

April
Swiss CPI               (MoM) +0.9%   +0.8%
Swiss CPI                (YoY) +2.4%   +2.3%
Italian Services PMI             48.2      49.8
French Services PMI             54.0      52.8
German Services PMI           54.6      54.9
Euro-zone Services PMI        51.8      52.0
Euro-zone Composite PMI     51.9      51.9
U.K. Services PMI                 51.7      50.4

The European services PMI were a mixed bag but overall seeing a modest improvement over expectations and mainly fueled by stronger figures out of Germany and Italy. Still, all but Italy are seeing modest expansion in the sector.

The figures compare favorably to more downbeat returns from the manufacturing and retail PMI numbers last week although do still remain in a mild downward trend. Inflationary pressures remain with the Euro-zone PPI still very firm while Swiss CPI remains at elevated levels that will cause discomfort at the SNB.

Switzerland’s UBS announced a Q1 loss of CHF 11.5bn which was very close to forecasts and this brings the total subprime related writedowns to $38bn. As a consequence UBS will cut 2,600 jobs this year rising to 5,500 next year in an effort to cut costs. Reports suggest that UBS will be offloading a portfolio of subprime mortgage debt to BlackRock, the US asset manager for $15bn.

States news overnight:

No economic releases from the States overnight but a few snippets to digest:

The Dallas Fed’s Fisher still opposes further rate cuts. This follows three consecutive meetings when he has dissented from the vote to ease.

He commented, “Personally, I’m concerned about inflation and the negative feedback loop, which is that inflation leads to changes in consumption and business patterns that further retard economic growth as well as to pressures in the foreign exchange markets.”

Indeed, he went so far as to suggest, “I need to think through, in terms of my input into the process, whether and when it makes sense to argue for increases as opposed to just stopping the cutting.”

With traditional demand provoked inflation following an economic upturn this may well be the case but current inflationary pressures are predominantly a product of excessive oil price increases and the consequent impact on food prices. Forecasters now are suggesting that the change by farmers to produce crops for bio-chemicals may now spread to cotton farmers and thus raise the price of clothing.

Lower interest rates may not be appropriate but raising interest rates will not reign back current inflationary pressures and would further dent consumer confidence which is not what they need just now.

In fact U.S. purchasing managers see the U.S. manufacturing and non-manufacturing sectors growing this year, but at a slow pace. This came through a report from the ISM which surveyed purchasing managers who see a modest rise over 2008 of around 1%. This is down from December’s result of 6.8%.

The U.S. administration would be grateful for such a result as would the Fed. There are still several hurdles to overcome on the way in terms of whether consumers spend their tax refund checks or whether they put them aside for a rainy day so they can afford to fill up their gas tanks.

No kidding, we are now seeing forecasts, one from Goldman Sachs, that forecasts oil prices rising to between $150-$200 pb. Last night saw a move up to new highs at $122 and there may be few who would want to bet against this forecast.

That sort of price would add to the inflationary woes and probably force other aberrations that have caused food prices to soar. It would also take an increasing share of households’ budgets and again reduce the amount of spending on real economy products that will keep growth pegged back for some while to come.

The Dollar fell back further yesterday although took a fairly choppy route lower and provides a little more evidence that an intermediate high has been seen in the Dollar. This still has a little way to go but I suspect the choppy nature of price movement will persist for some while.

There is nothing really to justify the Dollar making a sustained move in either direction while European data has taken on a rather lackluster aura. There may be chance of another decline in this pullback in the Dollar but before long we’re going to see another attempt to push it higher.

This shouldn’t see new Dollar highs at this stage which means that tight range trading is the most likely scenario.

More later once the daily analysis has been done…

The following releases are due from Asia due today:

Australia April AiG Performance of Construction Index

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This entry was posted on Wednesday, May 7th, 2008 at 1:30 and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.