• Home ::
• Technical ::
• Market View ::
• Market Thoughts

• Send
• Print
• Add To
• Rss

Market Thoughts

71fe8f1f-b3f5-43f7-82e5-ae935f31e750

0

0

31/3/2008 − The Current Market Sentiment

Mon, Mar 31 2008, 06:15 GMT
by Walid Salah El Din

FX Recommends

There is still a great deal of uncertainty in the equity market making the demand for Japanese yen as a carry trade funding currency very volatile recently reflecting this uncertain volatile movements of the stock markets especially the US one as the leader of it and the leader of the credit problems!. After the final reading of the Q4 GDP came unrevised at .6% and the price deflator of it revised down to 2.5% showing lower than expected inflation pressure which can be resulted from a slowing of consuming in that quarter.

March University of Michigan Consumer Sentiment came at 69.5 which is just lower than the market expectations of 70. the data came after a decline of Mar US Consumer confidence to 64.5 showing further decreasing spending in US and jobs losing worries increasing the market expectations of further Fed's cut in April can reach another .5%.

The greenback lost grounds across the broad on this interest rate outlook and weak consuming data after it could make a rally on the stock market taking risk reviving wave started by a Fed's cut by just .75% and fueled by JP Morgan higher valued buying bargain to 10$ from just 2$ for each Bear Stearns stock. Also, the increased expectations of US inflation slow down spurred energy and commodities corrections versus the US dollar. The fed mentioned in its US assessment that inflation is elevated but will moderate and Fed to monitor carefully. The recent US Feb CPI figures have shown the same as both of the broad figure and the core figure came unchanged and the market was expecting 0.2% increase for the Core CPI and a 0.3% rise for the broad figure and as I have mentioned earlier the price deflator of the Q4 revised down to 2.5%.

We are now at the end of the Japanese financial year and there can be some cautiousness in the beginning of next year amid the current uncertainty. The Japanese yen is waiting now for tomorrow first quarter Tankan survey which is expected to be 13 for the large manufacturing from 19 and 11 not the large non-manufacturers from 16. The yen is still taking its clues from the trust in the stock market as the first funding currency of the carry trade because of its low interest rate which is just .5% currently unfazed of the Japanese accumulated inflation pressure as Feb core National CPI which came higher than the market expectation of just .9% to be 1% to increase for the fifth consecutive month and Tokyo Mar yearly core CPI have done the same and it was .6% in Mar. the market was expecting this core of the capital just .5%. The impotence of this indicator came from its outpacing of the national core figure by a month earlier which means that it is a leading indicator to the market expectations of the inflation outlook in Japan which is looking increasing putting  pressure on the BOJ to keep its interest rate unchanged in the near term not following the Fed's cut to spur investment and liquidity . In the beginning of this week and after the decline of the US stock market by the end of last week, it has a boost from higher than expected industrial production rise in Feb to 4.2% y/y from 1.2 in Jan and just a monthly decline by -1.2% from 2.2% to drive the US dollar lower than 99 before getting back up again above 100.

In his testimony on Economic and Monetary Affairs Trichet indicated that if we had cut interest rates, we would suffer higher inflation and Interest rates are there to deliver mid-term price stability. The comments came after the release of optimistic IFO of Mar cam again higher than 104 to 104.8 which is higher the 104.1 of Feb which made Nerb's to say that further upturn from here would mean a bottoming out and the germane growth is in good conditions and it is not in need of interest rate cut now. We wait today for March EU HICP and it is expected to be 3.3% again this month.

The British pound is still suffering after UK March Nationwide Housing Prices y/y which came at -1.1% and the figure was much lower than the market expectations of -3%.

We wait today for US Chicago PMI as a key of the manufacturing performance last month. The reading is expected to be in the contracting territory lower than 50 but up from last month 44.5 to 46.

Best wishes

Published on  Mon, Mar 31 2008, 06:27 GMT