MAJOR HEADLINES – PREVIOUS SESSION

HEADLINES:

  • US Dec Trade Balance -$39.9b vs -$35.7b expected

  • NZ Jan PMI at 42 vs 42.5 prior

  • NZ Jan Food price Index at +0.8% vs -0.2% prior

  • JP Domestic Corporate Goods Price Index at -1.0% m/m, -0.2% y/y vs -0.6% +0.3% resp f/c

  • AU Jan Unemployment rate at 4.8% vs 4.7% exp, 4.5% prior

  • AU Jan Employment at +1.2k vs -20.5k expected

  • AU Q4 NAB Business Conditions Index at -16 vs -4 prior

  • KR BOK cuts interest rates 50bp to 2%

  • China Jan M2 at +18.8% y/y vs +18.4% expected


THEMES TO WATCH – UPCOMING SESSION

Events Today:

  • Swiss Consumer Confidence (0645)

  • Spain Prelim GDP Q4 (0800)

  • Dutch CPI (0830)

  • EU Industrial Production (1000)

  • US Retail sales (1330)

  • US Initial Jobless Claims (1330)

  • US Business Inventories (1500)

Market Comment:

US Treasury Secretary Timothy Geithner faced further grilling on his Financial Stability Plan as he faced the Senate budget panel. Members highlighted that they, and the public, had been looking forward to a plan that could be presented in a straightforward, clear and detailed way, but did not get it on Tuesday. Geithner repeated his mantra when facing similar criticism earlier, said the Tresury Department wanted to be careful in its preparations of the plan and not present one that would later have to be abandoned. He added that unclogging the credit markets and stabilizing the financial system needed to go hand in hand with the economic stimulus package

There was some good news on this front as negotiators from the US House and Senate overcame last-minute hiccups on funding and passed the $789 bln stimulus plan. Clearance of the bill, of which around one-third is geared towards tax cuts and the rest in spending, will now pave the way for a potential vote in the House on Thursday, and possibly later in the evening by the Senate and paving the way for Obama’s signature and subsequent enactment by the weekend.

While on the topic of stimulus plans, the Australian government has said it would accept some amendments to its A$42 bln second stimulus package in order to get the plan through parliament. The government is finding its bill stalling in the Senate where the government needs the support of the Greens and two independent senators in order to get it passed. One of these Senators said early afternoon that he would not vote for the package so it looks like it will fail the vote. In the end, the proposal was defeated and it’s back to the drawing board. AUD slid back after this news.

Still in Australia, there was a mixed bag of data releases from down under this morning which will likely become a feature of many such releases in coming months. Economists and observers will grapple with the notion of are we, or aren’t we, showing any signs of coming out of this global mess and good news will likely be short-lived and sht down by subsequent conflicting and negative data.
The positive news came from the employment data, which showed employment rising 1,200 in January and, more importantly, made up of gains in full-time employment (+33,700) offset by a fall of 32,600 in part-time employment. Despite the rise in jobs, the unemployment rate rose to 4.8% from 4.5%, a worse outcome than had been expected, with 4.7% the median forecast. It was also too early to pop the champagne in the business outlook, where the NAB Business Conditions Index slumped to its lowest level since 1992. The more depressing parts of the survey were the forward looking indicators, with expectations of capital spending fell 28 pts to -15 and forward orders -20.

More rate cutting was seen from the Bank of Korea this morning, though not quite as aggressive as Sweden’s Riksbank. The BOK lopped 50bp off rates to bring them to a record low 2%, and the central bank chief hinted that the authorities were open to further reductions. Quantitative easing, in the same manner as many other central banks, was also mentioned but would appear to be more of a last resort if rate cuts failed to revive the economy.

Activity in Asia was relatively muted, with currency pairs content to revert back to mid-range levels after the gyrations of the past few o/n sessions. Uncertainty over what happens to the stimulus package after the final vote this evening will likely keep markets volatile but range-bound.