US GDP expected to come out abysmal.


MAJOR HEADLINES – PREVIOUS SESSION

  • JP Dec Industrial Output -9.6% m/m vs -9.0% expected

  • JP Q4 Industrial Output -11.9% q/q

  • JP Dec Household Spending -4.6% y/y

  • JP Dec jobless rate rises to 4.4% vs 4.2% expected at 3.9% prior

  • JP Dec Core CPI up 0.2%

  • SI Q4 unemployment rises to 2.6% vs 2.2% prior


THEMES TO WATCH – UPCOMING SESSION

  • UK Mortgage lending/Approvals (0930)

  • UK Final M4 Monet Supply (Dec) (0930)

  • UK Consumer Credit (Dec) (0930)

  • EU Unemployment Rate (Dec) (1000)

  • IT PPI (Dec) (1000)

  • CA GDP m/m (Nov) (1330)

  • US GDP q/q (Q4) (1330)

  • US Employment Cost Index (Q4) (1330)

  • US Chicago Purchasing Managers Index (Jan) (1445)

  • US Final Michigan Sentiment (Jan) (1500)

Hot on the heels of the dire US data releases last night, Japan came out with some extremely dismal numbers of its own. Industrial production slumped by a record 9.6% m/m in Dec, with the quarterly numbers showing 9.1% drop and annual comparisons a hefty 20.6% y/y. Even more depressing was the accompanying survey which forecast another 9.1% m/m fall in Jan and then a 4.7% fall in Feb. Looks like there will be no good news in the foreseeable future. These sentiments were echoed my Japanese Economics Minister Yosano who said that it was impossible to say when the Japanese economy would bottom out and that rising unemployment coupled with falling output would pose serious problems.

The NZD received a lot of attention during the Asian session as RBNZ Gov Bollard was on the wires commenting that there was still room for further rate cuts (following on from Thurs’ 150bp easing) and expected further adverse news for the NZ economy to be forthcoming in the future, but added that the central bank’s “tool box” was by no means empty. The NZD was under pressure for most of the session following the comments.

With sentiment already on the back-foot as Asia opened, it took another hit early on when reports circulated that the proposed “bad bank” in the US was hitting snags, with Obama administration officials and Wall St executives unable to form a consensus on how such an entity would work and if any plan would materialize soon, or possibly ever. One of the major stumbling blocks is setting the price at which the toxic assets would be bought, seeking a compromise between too low a price so banks become insolvent once they write down losses and too high a price above current valuations with taxpayers subsidizing bumbling bankers. What started off as a potential savior looks like it is going to be mired in complexities and stand-offs.Latest Update: The WSJ is carry an article which suggests officials are discussing a new way to stabilize the financial system by buying a portion of banks' bad assets and offering guarantees against future losses on some of the remainder, in an effort to help banks while trying to mitigate the cost to taxpayers.

US bond markets received a bit of a wake-up call yesterday with a disappointing 5-year auction and yields higher across the board. China’s English-language newspaper China Daily carried an editorial effectively warning Washington that “it should not expect continuous inflow of more cheap foreign capital to fund its one-after-another massive bailouts”. The cracks are appearing and doesn’t bode well for the up to USD2.5 tln in debt that the US is likely to issue this financial year. The Fed may have to consider its intentions to purchase longer-dated treasuries sooner rather than later. Expect bond markets to be soft on the back of this, despite some bottom-fishing interest seen in Asia, and it may filter through to some negative sentiment against the greenback. The question is, what do you buy?

EURCHF

CHART: EURCHF

The dramatic failure at 1.5200 resistance combined with SNB’s Roth comments about no need to act at the moment puts the lower range of consolidation at 1.4730-35 in focus.