G20 meeting on Thursday and US non-farm payrolls/employment reports the target


MAJOR HEADLINES – PREVIOUS SESSION

  • US Mar. Final Michigan Confidence out at 57.3 vs. 56.6 prior

  • NZ Feb. Building permits out at +11.6% m/m vs. revised -13.0% m/m prior

  • UK Mar. Hometrack Housing Survey out at -0.6% m/m, -10.3% y/y vs. -0.8%, -10.0% prior

  • JP Feb. Industrial Production out at -9.4% m/m vs. -9.1% expected and -10.2% prior

  • AU HIA New home sales out at +3.9% m/m vs. revised +8.6% prior


THEMES TO WATCH – UPCOMING SESSION

  • Norway Retail Sales (0800)

  • EU Retail PMI (0800)

  • EU ECB’s Bini Smaghi speaks (0830)

  • UK Consumer credit (0830)

  • UK Mortgage approvals (0830)

  • EU Industrial/Consumer Confidence Index (0900)

  • EU Business Climate Index (0900)

  • EU ECB’s Trichet/Wellink speak at EU Parliament (1430)

  • US Dallas Fed Manufacturing Activity (1430)

Market Comment:

The woes in the financial sector were again in the headlines over the weekend on news of further bank bailouts. The UK announced it would be taking over the responsibility for up to GBP750m worth of loans at Dunfermline Building Society, Scotland’s biggest, amid disastrous investments in commercial property and MBS. The FT reported that Treasury officials were working on a private-sector takeover of the savings and mortgage accounts of the Society, though it is likely the taxpayer would be left accountable for the toxic element of the commercial loan book. Meanwhile in Europe, Spain announced it was to bail out regional savings bank Cassa Castilla La Mancha with government guarantees of EUR9 bln and the Bank of Spain taking over the running of the bank. Spanish banks have up to now escaped large fallout from the sub-prime crisis due to local regulations preventing them from getting involved in complex mortgage-backed securities. However, the deteriorating Spanish property sector during the current recession is now proving to be a major millstone around heavily-exposed banks. GBP and EUR both took hits during the Asian session on the back of these developments.

On a more positive note, UK’s Barclays said it would not need to raise fresh capital after it passed the FSA’s stress test. There is talk that an announcement regarding the sale of its iShares business will be forthcoming today and the bank may reject the need to subscribe to the government’s Asset Protection Scheme. However, across the Atlantic and possibly as a forewarning to the pending Q1 results reporting season, JPM/BoA reported that business had been “a bit tougher” in March while US Treasury Secretary Geithner commented that he expected further losses ahead for the financial sector.

The US auto sector featured again in the headlines as the March 31 deadline for restructuring plans approaches. In an interview published in the WSJ, US President Obama said he is prepared to give the ailing US auto sector additional billions in aid but only if all sides show that they were ready to make sacrifices to assure authorities that they had a viable future. The parties targeted to show sacrifices include management, labour, shareholders, creditors, suppliers and dealers. Meanwhile, news hit the wires that GM CEO Rick Wagoner had been asked by the administration to step down immediately as chairman and CEO. Later newswire headlines suggested that the Obama administration saw a structured bankruptcy of GM as maybe the best solution while the plans presented by both GM and Chrysler were not enough.

As we start the run-in to the G20 meeting in the latter half of the week, comments and rhetoric have already started spewing forth from its members. With reports that a lot of the final decisions have already been agreed, the summit can concentrate on presenting the “good news”. This was slightly pre-empted by a leaked draft of the summit communiqué which showed G20 leaders committing to a fiscal stimulus of $2 tln this year. Japan’s MOF commented that a discussion about reserve currencies was not due to be tabled. UK Times’ Kaletsky highlights 4 major topics likely to be included in the communiqué – saving the world economy from collapse with fiscal and monetary stimulus; saving banks from collapse with govt support; saving vulnerable countries from collapse with help from the IMF; and preventing a similar crisis in global financial systems from developing once the current one is solved.

More immediately, today’s data releases for Japan confirmed a further deterioration for the economy. The month-on-month decline for Feb. industrial production came in marginally worse than expected but still marked the longest losing streak since 2001 and compared to a year ago the decline was a record 38.4%. However, optimists could look for a small positive in the outlook section of the report with companies saying they would increase production in March and April as they begin to replenish stockpiles.

The rest of the week sees a slew of data releases, culminating in the US non-farm payrolls and unemployment data on Friday. Prior to that, we have the ECB meeting on Thursday with latest surveys suggesting a market preference for a 50bp rate cut to 1%. Japan’s Q1 tankan survey tomorrow is expected to remain at subdued levels.