Japan data again disappoints with largest c/a deficit on record


MAJOR HEADLINES – PREVIOUS SESSION

  • US Feb. Change in Nonfarm Payrolls out at - 651k vs. -650k expected

  • US Feb. Unemployment Rate out at 8.1% vs. 7.9% expected and 7.6% in Jan.

  • US Feb. Avg. Hourly Earnings at +0.2% m/m vs. revised +0.2% m/m prior

  • US Feb. Consumer Credit at $1.8bln vs. -$5.0bln expected and revised -$7.5bln prior

  • Japan Jan. Current Account at –JPY172.8bln vs. –JPY15.3bln expected and +JPY557.0bln prior

  • Japan Feb. Bank Lending out at +4.4% y/y vs. +4.6% y/y prior

  • Japan Feb. Eco Watchers Survey: Current out at 19.4 vs. 17.3 expected and 17.1 prior

  • Japan Feb. Eco Watchers Survey: Outlook out at 26.5 vs. 22.1 prior


THEMES TO WATCH – UPCOMING SESSION

  • Swiss Unemployment Rate (0645)

  • EU Sentix Investor Confidence Index (0930)

  • Canada Housing Starts (1215)

Market Comment:

The UK financial sector featured in weekend headlines after Lloyds announced late Friday that agreement had been reached with the UK government for them to increase their stake in the bank and insure GBP260bln of so-called toxic assets. More than 80% of the total assets insured came from the books of the troubled HBOS side of the banking group which Lloyds took control of last October. Hard negotiations last week had centred around the size of the stake Lloyds had wanted to allow the government to take and in the end took to close to 65% with a chance it could increase to 77% down the line. The price of the deal was not cheap for Lloyds, who paid a fee of GBP15.6bln to take part in the Asset Protection Scheme, saw the government’s stake increase to 65% and had to commit to GBP28bln in new lending over the next 2 years.

There is also speculation that Barclays will be next to start preliminary negotiations with the UK government to join the APS and receive taxpayer guarantees for its toxic loans. Barclays has so far resisted government funds, saying it is well capitalized. The bank caused a stir last month when it disclosed it had expanded its balance sheet by GBP900bln in 2008, and announced pre-tax profits of GBP6.1bln in 2008.

Following on from last week’s concern about the viability and health of General Motors, its European subsidiaries were in the news with UK’s Business Secretary Lord Mandelson saying that Vauxhall was in “terrible trouble” as GM heads towards insolvency. His German counterpart has also expressed concerns about the Opel brand, but both governments require specific proposals from GM for restructuring and the level of aid needed. Meanwhile, Opel has threatened to close three of its plants in Europe and lay off 11,000 workers in an attempt to shave EUR949mln off its staff costs bill.

US President Barack Obama has reportedly pulled the plug on talks aimed at forging a trans-Pacific Free Trade Agreement, just weeks before they were scheduled to commence. Negotiations on a deal encompassing New Zealand, Chile, Singapore, Brunei and the US were put on hold as the US is still appointing its next trade representative and the official line is that the Obama administration wanted to do a stock-take of trade policy before starting negations. However, the delay is likely to fuel talk that the US and other countries may shrink into the shell of protectionism as the global recession bites, especially since Obama stirred sentiment with his “Buy America” speech after inauguration.

Back to the markets, Japanese data releases (the only ones of note today) came in below forecast. The Jan. current account balance swung into a much heavier deficit than forecast, posting a JPY172.8bln deficit, the first since 1996 and the largest on record. While Jan. data is likely impacted by the timing of the Lunar New Year holidays this year, nevertheless the deteriorating situation brought on from collapsing exports saw the Nikkei retreating into negative territory after a positive start but little reaction on the JPY front, but a general shift towards risk aversion trades.