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29/3/2008 − The Current Market Sentiment

Tue, Apr 29 2008, 06:49 GMT
by Walid Salah El Din

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It is the same market sentiment which contained the market and provided support to the greenback that there is  a close end of  the fed's easing cycle which started since the beginning on the sub-prime mortgage bad loan which followed by the credit crisis and loses of the financial market across the broad. The mistrust in the growth performance and the need of liquidity for covering loses and reinforcing the capitals put pressure on the fed to cut the interest rate from 5.25% to 2.25% until now while the inflation is still building up on the current high oil and commodities prices tackling the fed's efforts to spur demand. Actually, the consuming confidence data are coming lower month by month without a stop lowering the investments targets and spending as well.

By God's Will, today, we are just waiting for the release of the consuming confidence of April which is expected to decline to 62 from 64.5 in March. The market wants to know whether there is a pause of the US disappointing consuming data or not. By the end of last week the US Michigan consuming sentiment survey declined again to 62.6 from 69.6 last month. The high oil and commodities prices are forming a real tackle of the consumers besides the current slowing down of demand and growth outlook. 

In the same time the housing slump is still looking for an end as last week we have had new weak new home sales decline by 8.5% in March too. The figure was the lowest since 1991 It is clear to the market that there are no signs yet for a close end of this continued slump. It is important to look into the fed's coming assessments words which will come out with its interest rate decision tomorrow to know how much they are worried about inflation currently.

An optimistic wave helped the equity market recently on increased expectations that the biggest loses of the crediting crisis has come and there will not be this massive impact again. The Japanese yen was under pressure in spite of the high CPI data which has shown an increase by 1.2% while the core came .7% showing increased inflation pressure in Japan too which may change the BOJ language tone at their meeting later this week. The demand for Japanese yen increases at these cheering times of equity market as its lower cost makes it the favorite currency for carry trade transactions.

The single currency was under pressure recently after disappointing IFO business climate figure which has fallen from 104.3 in March to 102.4 in April following the flash disappointing figure of April PMI manufacturing which came lower than the market expectations of 51.6 at just 50.8 increasing the market worries about the strong single currency negative impact on the manufacturers and the side effect of the slowing down demand from US but in an empty day of data the single currency got a support from The germane leading consuming indicator GFK Consumer Confidence which came up for May to 5.9 from 4.8 this month.

The BOE 50 billion pound plan of exchanging mortgages back securities for governmental bonds could help the British pound last week but the mortgage approving data forced it to give back most of it gains. The British pound was under the pressure of a slump of the mortgage approvals last week showing further worries about the housing and crediting markets fueling the market expectations of further interest cuts to come. We have just the UK consuming credit of March to be watched which is expected to decline to 1.2bln from 2.353bln.

Best wishes

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FX Consultant

Walid Salah El Din

E-Mail: mail@fx-recommends.com

Published on  Tue, Apr 29 2008, 06:50 GMT