The JPY has stopped advancing... even on stock market losses.


MAJOR HEADLINES – PREVIOUS SESSION

  • US Jan Import Price Index out at -12.5% y/y vs -11.2% expected

  • US Jan Housing Starts out at 466k vs 529k expected and 560k in Dec.

  • US Jan Building Permits out at 521k vs 525k expected and 547k in Dec.

  • US Jan Ind Prod at -1.8% vs -1.5% expected, Dec revised to -2.4% from -2.0%

  • US Jan Capacity Utilization out at 72.0% vs 72.4% expected and 73.3% in Dec

  • AU Jan Vehicle Sales at -1.1% m/m vs revised +1.7% in Dec

  • JP Jan Dept Store Sales at -9.1% y/y vs -9.4% prior; Tokyo sales -9.6% vs -10.4%

  • JP BOJ keeps call rate unchanged at 0.1%, as expected


THEMES TO WATCH – UPCOMING SESSION

Events Today:

  • Swiss Trade Balance (Ex prec metals) (0715)

  • Sweden CPI (0830)

  • Norway Q4 GDP (0900)

  • UK PSBR (0930)

  • UK Prelim M4 money supply/lending (0930)

  • Canada Leading Indicators (1330)

  • Wholesale Trade/Inventories (1330)

  • US PPI (1330)

  • US Initial Jobless Claims (1330)

  • US Philadelphia Fed Index (1500)

  • US Leading Indicators (1500)

  • US M2 money Supply (2130)

Market Comment:

US Pres Obama’s announcement of the housing plan aimed at stabilizing the housing and mortgage markets received more attention and focus than his signing of the US stimulus plan a day earlier. The plan builds on earlier ideas to buy Fannie Mae and Freddie Mac mortgages, increasing them up to USD900 bln, and increasing purchases of their stocks to the tune of USD400 bln. In addition, the plan intends to help up to 9 mln homeowners adjust terms of their mortgages, reduce payments and prevent foreclosures. Good timing for the announcement after data showed US housing starts in Jan at record lows.

Eastern Europe grabbed the headlines again o/n, with the situation in the Ukraine a particular cause for concern to EU authorities. The recent resignation of the finance minister, who no longer wanted to be treated as a “political pawn” resulted in barbed comments from Premier Yulia Tymoschenko who said “The weakest abandon the battlefield when circumstances are difficult”. The IMF’s refusal to disburse the second tranche of its USD16.4 bln rescue package, as the government had failed to rein in spending as promised, saw CDS rates soar on fears/rumours of an imminent default. EUR has still been relatively stable o/n despite the unfolding saga, with next support at 1.25 holding the first onslaught.

Ratings agency Moody’s turned its attention back to Europe in a recent report, highlighting that few European corporate borrowers would be immune to the wild currency volatility seen in 2008. It cautioned that the observed and potential effects of the excessive volatility would be seen in financial statements throughout 2009 and beyond. In contrast, it added that sometimes a false deteriorating signal might be raised when accounting for currency translation, when in fact underlying fundamentals remained strong. It recommended careful analysis of the full picture in each case.

ECB’s Bini Smaghi was quoted on the wires in what is seen as an indirect dig at Sterling’s recent weakness. He cautioned that the integrity of the single market operating across the 27 countries in the EU block could be undermined if some members allowed, or even encouraged, their currencies to depreciate sharply to gain competitiveness at the detriment of others.

The BOJ was in line with market expectations when it left the target call rate unchanged at 0.1%. In addition, it extended its commercial paper buying program and special fund supply operations to September, beyond the current March deadline, and announced an additional program to buy JPY1 tln worth of corporate bonds rated A and above with a 1-year maturity. USD supply operations and the practice of paying interest on excessive returns would be extended to October. When it came to the economy, the BOJ kept its assessment of the economy unchanged, with a recovery expected in H2 2009, but noted severe financial conditions. Along with most central banks, it saw consumer prices falling from spring but extended weakness in commodity prices and further economic downside risks could signal a deflationary spiral. Watch for further news from BOJ Governor Shirakawa’s embargoed news conference expected around 0715GMT.

Whilst on things Japanese, the government announced it would waive the tax on interest accrued on sovereign wealth funds’ holdings in the country, a cut from the normal 15% tax or 5-10% for countries with bilateral tax accords.