Month-end fixing, G20, ECB meeting and US employment report just some of the highlights for action this week
MAJOR HEADLINES – PREVIOUS SESSION
- Norway Feb. Retail Sales out at -0.6% YoY vs. +0.1% expected
- Bloomberg Mar. EuroZone Retail PMI out at 44.1 vs. 42.3 expected
- UK Feb. Net Consumer Credit out at -0.2B vs. +0.4B expected
- UK Feb. Mortgage Approvals out at 38k vs. 34k expected and 32k in Jan.
- EuroZone Mar. Economic Confidence out at 64.6 vs. 65.4 expected and 65.3 in Feb.
- EuroZone Mar. Consumer Confidence out at -34 as expected and vs. -33 in Feb.
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 market is consolidating recent moves across markets as it recognizes the import of the event risks this week. EURUSD has corrected close to half of its recent rally on risk aversion and as the market mulls a more dovish Trichet at this Thursday's ECB meeting. JPY crosses came off heavily on the risk aversion generated by the Obama administration's announcement that GM and Chrysler would receive no further funds for now and the forced resignation of CEO Wagoner. It appears that GM may be headed for a temporary bankruptcy to allow a restructuring of the company and relief from the relentless pressure of its creditors if it is unable to cut costs and come up with a new plan ASAP. Chrysler may be cast into the arms of Italy's Fiat.
A draft of the G20 communique was leaked to the FT over the weekend, and it appears there may be less surprise than was perhaps widely anticipated heading into this meeting. See the FT and highlights and comments in the Guardian today. There are mixed messages on the degree to which the summit is expected to announce new stimulus measures or simply to express the hope that the measures already announced will begin to bear fruit. It will be a surprise considering recent reports of discord, if the summit announces strong new stimulus measures this time around. Regardless, we fear that stimulus efforts aren't any place to invest significant hope, but would certainly be happy to be proved wrong
As we and most other suspected, it appears there are strong provisions in the new communique for bolstering the IMF's financial firepower for helping out weaker countries in this crisis. As well, it appears that the international community has decided to go after the world's tax havens, which could rub Switzerland the wrong way. Other parts of the statement are aimed at international financial regulation, including a new "Financial Stability Board" that will attempt to widen and deepen the activities of the Financial Stability Forum. Brave words also appear on the way from the G20 on protectionism and currency devaluation, though the de facto picture, especially on the latter, suggests that we should continue to look for increasing signs of both. Desperate economic weakness does not a happy population make, and politicians, though they will attempt to put on a great show of hugs, handshakes and hard new policy at the G20 this week, know that the quick and easy wins with their constituencies at home will come with more protectionism and a weaker currency.
On the risk appetite/risk aversion front, we note that the S&P500 is trading right on its key 55-day moving average here shortly after the open today and that risk aversion has weighed heavily on the JPY crosses and even on EURCHF overnight (on the latter, everyone is wondering when the SNB will step in again!). The S&P level is an important level across markets for risk appetite and will certainly have a bearing on currencies
Below we take a look at the data highlights for the very busy week ahead. Watch out for US numbers, which may surprise to the upside with the exception of the always lagging employment data. There seems to be a pattern of stabilization in the US, or at least deceleration of the worsening in several recent data points.
Tuesday
- Japan Feb. Jobless Rate and Household Spending - Japan's jobless rate has been rising slowly but could be set to accelerate considering the swan dive off a cliff that the Japanese economy performed in Q4 and the dire numbers rolling in for this quarter as well.
- Japan Mar. Small Business Confidence - this confidence number is far worse than what it was when Japan was entering the beginning of its Lost Decade almost two decades ago. The situation in Japan looks terrible.
- Sweden Consumer and Manufacturing Confidence
- Germany Unemployment Change and Rate - the inflexible German labor market is only now beginning to show official signs of stress in the unemployment rate. This just goes to show how much more pain is in the pipeline.
- Canada Jan. GDP - the numbers out of Canada have worsened steeply and the Jan. GDP is expected to show another month-on-month contraction from the terrible -1.0% number from December
- US Jan. S&P/CaseShiller Home Price Index - this index has shown signs of stabilizing lately - but only stabilizing in the sense of the rate of deceleration rather than a price stabilization - the home price drops may begin their slow crawl back to 0% on year-on-year comparisons from now on. The focus is beginning to shift to commercial real estate, where a new debacle looms.
- US Mar. Chicago PMI - the last of the major regional PMI's may give an indication of whether the ISM number has a chance at a reasonable uptick this month.
- US Mar. Consumer Confidence - the Feb. number was a shocker at 25, a massive drop of 12 points from an already very low reading in January. We wouldn't be surprised to see a sharp rebound in this number as equity markets made a strong comeback attempt in recent weeks. Due to the comparative nature of parts of the survey, it is unlikely that the reading can get much worse than what we have seen.
Wednesday
- Australia Mar. Performance of Manufacturing
- Japan Q1 Tankan Survey - surprisingly, this survey has not reached its lowest reading ever, though it may give the mid-70's low a run for its money this time around, considering the breakneck pace of the recession that has settled over Japan.
- Australia Feb. Retail Sales - with the services surveys performing so poorly of late, we would generally expect downside surprises for this number.
- Australia Feb. Building Approval - building activity is slowing rapidly in Australia, with numbers already off more than -33% in Jan. on year-on-year comparison
- Germany Feb. Retail Sales
- EuroZone Final Mar. Manufacturing PMI Readings
- US Mar. ADP Employment Change - this prelude to Friday's US employment report is unlikely to contain anything to cheer about, considering the continued very high jobless claims numbers and backed up by the depressing reading about job cuts every day in financial newspapers
- US ISM and ISM Prices Paid - little if any improvement should be expected in the ISM survey, though an eventual return to 50 should be expected before too long as the survey requires continued worsening to stay below 50, and eventually, the manufacturing sector has to stabilize, even if at very low levels of activity. The ISM Prices Paid number is a very interesting one to watch for the deflation/inflation argument. Recent levels show the sharpest drop in prices paid since the late 1940's.
- US Feb. Construction Spending - lots of further contraction in the pipeline for this number, considering the long completion time for many projects.
Thursday
- Australia Feb. Trade Balance - the terms of trade are worsening from their best levels due to the commodity sell-off and slackening appetite for key exports from China.
- Norway PMI and Unemployment Rate - the economy here is suffering as it is everywhere else...the recent Norges Bank meeting showed a central bank ready to move rates quickly toward zero if necessary
- EuroZone ECB to announce rates - 50-bp cut to 1.00% expected and everyone will focus on Trichet's outlook for how low rates can go and to what degree the ECB will attempt further credit/quantitative easing
- US Weekly Initial Jobless Claims - this number needs to level off if we're ever to expect the unemployment rate to slow its rise
- G20 summit - as the Times Anatole Kaletsky writes, the Thursday communique from the G20 may already be written and may show a G20 trying to put on a game face of uniting to fight the crisis - although subsequent actions - particularly of the protectionist variety - will speak louder than any grand words coming out of this summit.
Friday
- Australia Mar. AIG Performance of Services Index - this number suggests a service economy in a complete tailspin. Are things worse Down Under than is currently priced into the market?
- Switzerland Mar. CPI
- EuroZone Mar. Final PMI Services
- US Mar. Change in Nonfarm Payrolls - another reading much worse than -600k is expected
- US Mar. Unemployment Rate - expecting another large increase from the 26-year high for Feb. of 8.1%
- US Mar. ISM Non-manufacturing - this all-important survey has seen a bounce from the record low December reading - how much further can the bounce extend?
Chart: EURUSD
EURUSD is slicing lower on the new bout of risk aversion to open the week and ahead of a possibly dovish Trichet on Thursday. A key level comes in just above 1.3100, the 100-day moving average (not an important MA recently, but was very influential in recent years), and also the 50% retracement level for the recent rally to north of 1.3700. Below that, the psychologically important 1.3000 level looms.
