Obama on the offensive to protect good mood post-Geithner, Asian bourses seem resilient


MAJOR HEADLINES – PREVIOUS SESSION

  • US Jan. House Price Index out at +1.7% vs. -0.9% expected and revised -0.2% prior

  • US Mar. Richmond Fed Manufacturing Index out at -20 vs. -51 expected and -51 prior

  • US Mar.23 ABC Consumer Confidence out at -49 vs. -47 prior

  • JP Feb. Merchandise Trade Balance out at +Y82.4b vs. –Y20b expected and revised –Y956.9b

  • JP Feb. Exports out at -49.4% y/y vs. -47.6% expected and -45.7% prior

  • JP Feb. Imports out at -43.0% y/y vs. -38.4% expected and -31.9% prior

  • NZ Westpac Q1 Consumer Confidence out at 96.0 vs. 101.3 prior


THEMES TO WATCH – UPCOMING SESSION

  • EU German IFO Business Climate (0900)

  • UK CBI Distributive Trades/Expectations Balance (1100)

  • US MBA Mortgage Applications (1100)

  • US Durable Goods Orders (1230)

  • NO Norges Bank Interest rate Announcement (1300)

  • US New Home sales (1400)

Market Comment:

Markets took a step back overnight from the euphoria that was generated after US Treasury Secretary Geithner presented the latest US plans to purge banks’ balance sheets of toxic assets on Monday. The temptation to book profits after the 7%+ gains proved too great while testimonies by Fed Chairman Bernanke and Geithner before a House panel highlighted the need for stricter regulation of financial institutions. This put pressure on the sector and helped push broader indexes some 2% lower.

In addition, renowned Nobel Prize-winning economist Professor Stiglitz also poured cold water on the US Treasury’s plan, saying that is was “very flawed” and amounted to “robbery of the American people”. His comments echoed those of prize winner Paul Krugman a day earlier who also opined that the plan was almost certain to fail. Further criticisms also came from former SEC chairman Arthur Levitt while PIMCO’s Bill Gross, who pledged to support the programme, expressed reservations whether the plan did enough or was big enough to solve the crisis.

US President Barack Obama, in his prime-time address on the economy (which knocked “American Idol” off prime-time scheduling!), called for patience on the economy and pressed his case for the 2010 federal budget with its $3.6t deficit. He insisted that the budget proposals were necessary to ensure secure and long-lasting prosperity. He reiterated that the administration was attacking the crisis on all fronts and reckoned that there were signs that progress against the recession was being made. In an apparent broad-side to recent reports that China, Russia and others were interested in creating a new reserve currency, he stated that the greenback was “extraordinarily” strong and he believed that there was no need for a global currency, adding that investors viewed the US as the most politically stable.

Asian bourses had a mixed session, but were quick to recoup early losses and finished the session only marginally in the red, with the Australian index in the black.

Japan featured heavily in the news this morning with economic data showing exports in February plunging a record 49.4% from a year earlier as the global slowdown impacted with demand falling across all regions. The fall in imports was just as large, slumping 43% y/y, and this enabled the export-oriented nation to record its first trade surplus in 5 months, albeit a meager JPY82.4b. This was at least a sharp turnaround from January’s record JPY956.9b deficit but was still some 91.2% lower than in the same month a year earlier. Nevertheless, the hefty slump in exports has rekindled expectations that Q1 GDP numbers will be at least as bad as Q4 2008, and maybe worse. BOJ Deputy Governor Yamaguchi did not have any positive words to say on the economy either. In an address to business leaders in Hokkaido, he admitted that the economy would remain in a severe state for now as it would need time for the fiscal and monetary steps taken to have an impact. However, he reiterated the BOJ’s latest official line that policy steps would focus on measures to stabilize the financial system and ease corporate funding conditions.
His boss, BOJ Governor Shirakawa emphasized that Japan was not slipping into a deflationary spiral, adding that he would not allow such a condition to come about. He was responding to speculation earlier in the week after data showed that land prices across Japan had fallen for the first time in 3 years.

The EUR came under fire in the Asian session on news that the Czech PM Topolanek would resign after his government lost a vote of confidence in parliament. Emerging Europe again proves to be a stumbling block for the Euro-bloc currency with the timing particularly unfortunate given that the country is half-way through the presidency of the EU with some significant legislation in the pipeline, some in response to the economic and financial crisis. Also bear in mind this resignation comes hot on the heels of the resignation of his counterpart in Hungary, Ferenc Gyurcsany, also in response to criticisms over the handling of the financial crisis.